Just to make sure we are on the same page !!!
1.- Since Rails 2.0.X use SQLite3 as the default DB. just for backwards compatibility on step 1 use:
rails todo -d mysql
This will create the database.yml file with the correct settings for MySQL DB. use other databases to your specific needs.
2.- After you change to the todo directory, before you run the rake:dbcreate:all you must review your database.yml to make sure includes the correct user/password to access your database.
As a supe quick start this seems to be perfect. I think will be great idea to add some other tutorials to add some more complexity.
Best Regards din00z.