You have now described the intended behavior.
The test is now:

        if ((lpdi->size != LSH_DLGINFO_EX_V1_SZ &&
             lpdi->size < sizeof(LSH_DLGINFO_EX)) ||
            lpdi->dlgtype != DLGTYPE_PASSWD) {

            MessageBox(hDialog, "An incorrect initialization data 
structure was provided.",
                        "AuthenticateProc()",
                        MB_OK | MB_ICONSTOP);
            return FALSE;
        }