This error message is shown when you are connecting to a MySQL database that has its passwords stored in the old password format (http://dev.mysql.com/doc/refman/5.0/en/old-client.html). Newer MySQL clients do not allow a connection to be made to databases using the old password format as it is less secure.
Some would suggest to set old_passwords=1
at the MySQL server, but I think it would be better to upgrade the passwords to the new password format. Then the MySQL connection can be setup again and your database will be better protected.
You can read about how to upgrade your MySQL passwords from the old format to the new format here: http://code.openark.org/blog/mysql/upgrading-passwords-from-old_passwords-to-new-passwords