As explained in the upstream bug report:

I had a similar problem.  I fixed it by removing the two auto-created anonymous 
localhost
users.  These had higher precedence in the MySQL user-matching ordering, because
'localhost' is more specific than '%'.

References:
Anonymous users are created by default:
http://dev.mysql.com/doc/refman/5.0/en/default-privileges.html

Order matching:
http://dev.mysql.com/doc/refman/5.0/en/connection-access.html
(It is a common misconception to think that, for a given username, all rows that
explicitly name that user are used first when the server attempts to find a 
match for the
connection. This is simply not true....)

** Changed in: mysql-dfsg-5.0 (Ubuntu)
       Status: Triaged => Invalid

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https://bugs.launchpad.net/bugs/226851

Title:
  '%' hostname doesn't match localhost

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