You're correcut nocomment, as long as one doesn't create a new DB user and uses that one instead of the master sql user.
As I wrote above. I've tried various combinations of credentials, both with the master user and other newly created ones. I've changed passwords on them using shell access as well, since some users have reported that as a solution. No good. Same error. Same user credentials that work in Wordpress, but not in Wordpress MU.
In the current wp-config.php I have my master credentials entered. I've tried all three given paths to the host. Non works.
Just gave it a shot at another hosting solution I got. Worked flawlessly there. Same procedure on (mt) does not work for me.
At this point i'm willing to create login to my (gs) and this domain, just to prove that I have done everything according to instructions and your input here.