Thanks, the link that you specified will only work if its deployed to CRM, what i need is to create an entity from an external client ex: fiddler, and how do we pass the credentials ?
There is no supported external auth mechanism for the REST endpoint right now. Have you tried logging in to CRM Online and capturing the fiddler traffic to see what is being passed? REST is not supported externally to CRM right now (until OAuth gets implemented)
so even if you do the SOAP-based authentication with CRM Online as shown here (http://community.dynamics.com/crm/b/crmgirishraja/archive/2011/02/04/connecting-to-crm-online-2011-web-services-using-soap-requests-only.aspx#.Uf_---Io6Uk) that
doesn't get you anything you can pass to the REST endpoint. Try just logging in to your CRM Online instance, then in that same browser issue a REST retrieve to get your contactSet or something with Fiddler turned on, and look at what gets sent in the request
(hint: you may be able to grab some cookies for re-use once you are already logged on - but someone has to log in first to get the cookies which are only good for X amount of time)