Cannot rake db:create:all — Couldn't create database for {“encoding”=>“utf8”, “username”=>“root”, “adapter”=>“mysql”

I'm trying to get a rails app up and running on my computer, and I'm having issues with creating the databases. I've properly installed/setup rails, mysql and have installed the mysql 2.8.1 gem (I verified this with gem list).

So now, I'm trying to run 'rake db:create:all' and I'm getting the following error:

Couldn't create database for {"кодировка" => "utf8", "username" => "root", "адаптер" => "mysql", "database" => "pyo", "host" => "localhost", "password" => nil, "socket" => "/ tmp / mysql.sock"}, кодировка: utf8, сортировка: utf8_unicode_ci (если вы устанавливаете кодировку вручную, делаете убедитесь, что у вас есть подходящие параметры сортировки)

Не удалось создать базу данных для {"кодировка" => "utf8", "username" => "root", "адаптер" => "mysql", "database" => "pyo_test", "host" => "localhost", "password" => nil, "socket" => "/ tmp / mysql.sock"}, кодировка: utf8, сортировка: utf8_unicode_ci (если вы устанавливаете кодировку вручную, делаете sure you have a matching collation)

I'm currently running 5.5.10 MySQL Community Server (GPL) on Snow Leopard (10.6.6)

And here is what is in my database.yml file

development:
  adapter: mysql
  encoding: utf8
  database: pyo
  username: root
  password:
  socket: /tmp/mysql.sock
  host: localhost

test:
  adapter: mysql
  encoding: utf8
  database: pyo_test
  username: root
  password:
  socket: /tmp/mysql.sock
  host: localhost

I notice how the end of the error says "charset: utf8, collation: utf8_unicode_ci (if you set the charset manually, make sure you have a matching collation)" -- Is that the issue? And if so, how do I fix it?

I've been stuck on this thing for hours and can't find anything that helps on Google. So any help at this point would be much appreciated.

Thanks!!