Your configuration file looks okay.
Your login can't work, because without a database, Alfresco can't check if your allowed to login.
When you stop Alfresco, recreate the database, like you did and start it, what does the log say?
Are there still problems connecting to it?
Are there other applications running, that may hinder a database access, like security tools or other software, that connects to databases?
Are there maybe stale Alfresco processes left, that block your newly started one?
Normally, Alfresco 3.2 works out of the box with MySQL.