Again, this is a MySQL issue, but the problem is that you're trying to connect via "localhost" which isn't going to work because you're not accessing the database from the same machine it's installed on.
In the MySQL "user" table, you need to set two different username/password records. One for localhost, and one with the hostname of the computer (www.yoursite.com
, for example). You need to use the username/password combo for the entry with the hostname, not localhost.
Hope that makes sense, but again, you really should hit the MySQL boards to get MySQL up and running. This isn't a phpBB issue.