Umbraco 4 broke the Umbraco API webservices as they assume plain text passwords and the default is now hashed.
These updated webservices use the membership provider to authenticate.
They also provide an implementation of the Media Service which was previously just a stub.
I have committed these changes to v4.1 of Umbraco so this project should only be used as a fix in 4.0.x.
The project is distributed as a Visual Studio solution. You will need to build the project and replace the DLL and .asmx files as appropriate.
Please feel free to leave feedback.