I was receiving this error after switching to the MySQL2. It turns out the reason is because I needed to update my MySQL connector.
To do that I
(1) went to: http://www.mysql.com/downloads/connector/
(2) I selected Connector/C (libmysql)
(3) I downloaded the Windows (x86, 32-bit), ZIP Archive no-install
(4) I placed it in my ruby/bin directory, which for me was in: C:\RailsInstaller\Ruby1.9.3\bin