Well, assuming that the domain is correct, I don't see any reason in particular it wouldn't work. If you open up the developer/network tools when logging in, can you see the cookie being set after logging in and then being sent with the subsequent request?
If I am logged into the Admin Control Panel before I upload the 1.2.1 files, I can do the upgrade no problem. It is only if I try to log in as part of the upgrade process if I am not logged in already.