I’ve recently came across the old problem with Dreamweaver to MySQL DB connection with ‘Access denied for user ‘…@’localhost’ (using password: YES)’.  From past experience I knew the Dreamweaver MX2004 and MySQL 4.1 had a problem with authentication protocol based on a password hashing algorithm that is incompatible with that used by older clients and software such as Dreamweaver MX 2004. However I would never expect the same with Dreamweaver CS3 and MySQL 5. 

To solve this problem, you should reset the password to pre-4.1 style This can be done using the SET PASSWORD statement and the OLD_PASSWORD() function: (enter this code through the MySQL command line client. 

mysql> SET PASSWORD FOR-> ‘some_user’@'some_host’ = OLD_PASSWORD(‘newpwd’); 

More information here