Basically, I believe the problem that I was experiencing was due to differing password hash lengths. In my case, I got a new server, did a complete mysql dump on it which transferred passwords and user info also. The new server was already initialized with a root user that had a 16char length hash, but my old server was using the newer 32 char hash lengths.
I had to go into my.conf set the old passwords setting to 0 (other wise every time I tried updating the database, the new update was 16 chars in length). I then updated all the passwords to be the same via the command UPDATE mysql.user SET password=PASSWORD('password here');, then I flushed privileges.
Obviously, having every user with the same password is a really bad idea, so I changed them one by one after I confirmed that it was working.
I typed up a blog entry that goes into some of the other things I did that didn't work here, before I happened upon this solution (just in case one or more of those changes effected my outcome) however, I think that the above solution to be complete... but I haven't tried to reproduce the error so I can't be 100% sure.