This is actually not a Web Gateway issue, it is actually a browser behavior, Firefox will "allow" prompts for FTP username and passwords, whereas IE, will not, and you must specify the username and password in the URL.
Microsoft has a KB on it:
How to access an FTP site that is not anonymous using Internet Explorer
Symptom: Internet Explorer cannot access FTP sites requiring credentials.
Issue: When FTP requests are sent over HTTP for Web proxy clients, only anonymous access is allowed. To use Internet Explorer as an FTP client when an FTP server requires authentication, you must configure Internet Explorer for direct FTP access.
Solution: Enable the Enable folder view for FTP sites check box in Internet Explorer. This causes Internet Explorer to prompt for credentials. Then specify credentials in the following format: ftp://username:email@example.comfirstname.lastname@example.org/. Alternatively, configure the client as a SecureNAT or Firewall client and access the FTP server using an alternative FTP client.
I have a question with the passing of the FTP creds. It appears that if you pass then in the url that they would be in clear text. Is there a way to allow secure exchange of the credentials?
as far as I know FTP is an unsecure protocol and does not provide any way to encrypt the credentials. You could use authentication server to enforce a secure NTLM authentication from a users web browser before FTP access is granted, but the FTP protocol will remain plain-text.