I have gotten nowhere:
I have started from scratch and re-installed the extension, removed and re-created the database connection string and I am still ending up with the password message.
Things I have done...
I have tested locally and all works well, fast connection, no errors
I have used a different tool for the sake of making a connection and connected to the database with MySQL Workbench, this connection happened very fast with no errors.
To me the fact that I was able to connect using a different tool tells me that my IP address is approved and the password issue is not present.
So my question is, is this a problem with DW CS4/CS5.5 or the extesion?