Thanks for taking the time to report this bug in Ubuntu.

I think that this is actually the intended behavior; some notes about a
'default' install:

1) mysql by default only binds to 127.0.0.1
2) the 'empty' accounts are anonymous accounts which are only usable from 
localhost or the server itself

You can make the 'testuser' account in your example work by creating a
user with:

CREATE USER 'testuser'@'localhost' IDENTIFIED BY 'testpw';
GRANT SELECT ON testdb.* TO 'testuser'@'localhost';
FLUSH PRIVILEGES;

OR you can bind mysql to 0.0.0.0 and your account above will start to
work with:

   mysql --user=testuser --password=testpw -h <server hostname>

The host wildcard that is created when no origin is specified will match
'localhost'.

Marking 'Invalid' as this is the intended behaviour and not a bug.

** Changed in: mysql-5.5 (Ubuntu)
       Status: New => Invalid

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https://bugs.launchpad.net/bugs/1024300

Title:
  Empty strings in mysql.user "disables" new users

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