The popup is a different page in this case. IIRC, cookies from a page in a frame aren’t accepted by modern browsers by default. If you can, put the log in box on a separate page or in a “div” layer that can be hidden/shown when needed (can be made to look just as it does now, but the mechanics will be different). I’m not familiar with DNN, so can’t really recommend anything specific.
P.S. As a workaround the users can right-click on the popup and choose something like “open frame in new tab” from the popup menu and login on that page.