Connection issue under Win2003 / MySQL 5.1

This appears to be a bug, but I'll ask the question first.. :-)

I have been using the connector for a week or so under the above config and all was fine. The, suddenly I can not connect to the MySQL server. I'm using SQLAlchemy and all I want to do it create the engine and connect. In SQLAlchemy land this is

e = create_engine(details..)
e.connect()

I'm getting an error which I've traced to code in cursor.py

    def set_connection(self, db):
        try:
            if isinstance(db.conn.protocol,protocol.MySQLProtocol):
                self.db = weakref.ref(db)
                if self not in self.db().cursors:
                    self.db().cursors.append(self)
        except Exception as message:
            raise errors.InterfaceError(errno=2048)

There is no value in db.conn (It's None), and therefore it throws 2048. So, my question is, under what circumstances could there be None value in db.conn? I have the exact same database, connector version and SQLAlchemy version running perfectly on my XP VM - and - this USED to work on 2003 ?? I have been bogged down for two days attempting to solve this so any help would be most appreciated.

It's throwing this error where in SQLAlchemy it first attempts to "SELECT DATABASE ()"

Warwick