What guide did you follow.
If used the latest guide, the GRANT ALL PRIVILAGES command is not needed.
Try this one, as the error you get is normally do to this step being missed in the guide.
Code:
set password for 'root'@'localhost' = OLD_PASSWORD('****');
**** being the password for your root account you put in when running the instance server config wizard from the end of the mysql setup. (LEAVE THE ' IN THERE)
To get to where you need to type this in, Start->Programs->Mysql->Mysql Server5->MySql Command Line client
or Go to run, type in cmd, and when that comes up, type in mysql -u root -p
You dont have to be under any database to do this. Just run the command