Hi galgoz,
This is a very old preference (by that I mean it is not new functionality) that has always worked fine for me. And yes, the way you are expecting it to work is correct - you should not have to re-enter the password until all browser windows/instances have been closed.
Can you provide a little more info? Versions of PM, FFox and OS, some example websites?
Is it prompting you for the password automatically? Or maybe you mean you are having to hit ALT-` (which woul dmean, you simply have to check the 'Automatically populate' checkbox)?
Lastly, could be a conflict with some other extension maybe? Have you tried in a clean profile?