Thanks Colin. Your response actually helped solved the problem. I 
started having the issue after I upgraded to Rails 3.2.3. I tried to 
create a new database using rake db:create (as you suggested) and it 
showed me that the problem was a version difference between MySQL and 
the client used by rails. The following article helped me solve the 
problem:

http://dev.mysql.com/get/Downloads/Connector-C/mysql-connector-c-noinstall-6.0.2-win32.zip/from/pick

Thanks again,

Fernando.

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