In "create database" command from the console, user and password are used only to authenticate against a remote database. With "plocal", "local" and "memory" URL the admin user is always "admin" with password "admin".
So use:
graph = new OrientGraph("plocal:C:/Development/orientdb/databases/testdb", "admin", "admin");
Starting from OrientDB 1.7-SNAPSHOT the console accepts only the URL for such cases:
create database plocal:/C:/Development/orientdb/databases/testdb