Does other connections to the MySQL server work?
I've seen in past this error in two occasions:
mysql.user table was completely empty providing no
privileges at all. For example SUSE Studio produced such virtual machines
at some point (maybe it's still the case, I did not check).
- You're missing
localhost host in
127.0.0.1 are different -
first one is for socket based connections, while the latter for TCP based