Okay, I did some more digging around, and I think I found the problem.
The issue is because in a recent change of FireGPG, when the default preferences are loaded, they inverted from the values gpgAuth is expecting.
It should be fixed in the next release of FireGPG - in the meantime, for FireGPG version 0.7.10, you can fix the problem by performing the following steps:
Windows XP:
Click on Start -> All Programs -> Accessories -> WordPad
(Use WordPad, not Notepad, as notepad will not read the file correctly)
Then click File -> Open, and navigate to C:\Documents and Settings, Your user account, Application Data\Mozilla\Profiles, Your profile (usually RANDOM_STRING.default), extensions\
firegpg@firegpg.team\defaults\preferences, and there should be a file called "firegpg.js", click on it and click "Open",
Find the line that says:
pref("extensions.firegpg.gpgauth.global.enable_gpgauth", true);
and change word "true" at the end to say "false", so it looks like this:
pref("extensions.firegpg.gpgauth.global.enable_gpgauth", false);
Then save the file and restart FireFox, and all should be working now..
For Linux (Ubuntu and most others):
Navigate to ~/mozilla/firefox/profiles/, select your profile, extensions/firegpg@firegpg.team/defaults/preferences, open in your favorite editor and modify the same line as described above. OR - I have attached a bash script which will do the same as that for all profiles for your user.
Just download the bash script, execute it, and restart firefox. (You really should review the contents of the script first, for security reasons, but also to verify it, I wrote it quickly and it might not be perfect)