Ok, I missed the first part, but I'm guessing this is Rails related

here's a database.yml file segment from a windows rails app

development:
  adapter: mysql
  database: depot_development
  socket: /path/to/your/mysql.sock
  username: root
  password: password

This is what I'm using (MySQL 4.1.x), Rails 0.14.3 on windows and as you 
see the socket points to nothing in particular.

I think your problem is that you are on MySQL 5 and that version changed 
how it handled passwords etc and I think the client driver that comes 
with One-click installer (which as a windows user I assume you're using) 
doesn't properly support the new server

google for

mysql5 authentication protocol

and you'll see a host of problems (mainly php related).

Easy fix is to install MySQL4 instead of 5 and then the Rails defaults 
automagically work

Kev