I had been in a problem of updating the plugins of the WordPress hosted by altervista: the normal situation is that a plugin can be installed/updated without asking any username/password information, but in my case it asked for username/password of hosting the WordPress (of course, altervista). The problem was that it showed failed to connect to the server after I gave the correct information. This problem occurs after I updated the whole WordPress package which may disrupt the settings by altervista.
I tried many ways and all failed. Finally, I export the content of my blog using the Tools->Export function and then delete the whole blog from altervista dashboard (in the ‘applications’ tab). Then I reactivate wordpress in the ‘Applications’, and import the old blog using the Tools->Import function. All set.
Good luck!