WordPress slugs and 404 handling takes preference over folders in site root?

For beta testing use either a separate domain or at least a subdomain in another directory than your live site.

If you absolutely have to use the current setup install a plugin that offers password protection like Members or change the .htaccess rules to:

<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /
RewriteRule ^index\.php$ - [L]
# exclude /beta
RewriteCond %{REQUEST_URI} !/beta
RewriteCond %{REQUEST_FILENAME} !-f
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule . /index.php [L]
</IfModule>

… and create a separate .htaccess for the beta site.