I didn't see any errors in mysql log.  I am not yet authenticated, it is when you first click the button after entering the mysql settings and it tests the connection/authentication but yet doesn't come back it just hangs.

That sounds like a good idea.  I went ahead and added 'openfire'@'hostname' (hostname being equal to what the `hostname` command comes back with).  Unfortunately it did not seem to help.   This is the strangest problem because the mysql utilities all work fine from localhost.   This would make me believe it has somethign to do with the java mysql driver that openfire uses but I don't know enough about java to troubleshoot it much further.

Another very good suggestion!    However, neither the one  you linked nor the one from mysql website worked

Although I have more information.   Looking closer at my mysql query log, here are the comparison of queries between the successful (JOHN server -> JAMES's mysql) versus the UNsuccessful (JAMES server -> itself MYSQL):

1. JOHN SERVER CONNECTION TO JAMES MYSQL IP

080703 14:17:22       9 Connect     openfire@192.168.100.43 on openfire

10 Connect     openfire@192.168.100.43 on openfire

9 Query       SHOW SESSION VARIABLES

10 Query       SHOW SESSION VARIABLES

10 Query       SHOW COLLATION

9 Query       SHOW COLLATION

9 Query       SET character_set_results = NULL

10 Query       SET character_set_results = NULL

9 Query       SET autocommit=1

10 Query       SET autocommit=1

10 Query       SET sql_mode='STRICT_TRANS_TABLES'

9 Query       SET sql_mode='STRICT_TRANS_TABLES'

9 Query       SELECT @@session.tx_isolation

9 Query       SET SESSION TRANSACTION ISOLATION LEVEL REPEATABLE READ

9 Query       USE `openfire`

10 Query       select 1

11 Connect     openfire@192.168.100.43 on openfire

11 Query       SHOW SESSION VARIABLES

11 Query       SHOW COLLATION

11 Query       SET character_set_results = NULL

11 Query       SET autocommit=1

11 Query       SET sql_mode='STRICT_TRANS_TABLES'

12 Connect     openfire@192.168.100.43 on openfire

12 Query       SHOW SESSION VARIABLES

12 Query       SHOW COLLATION

12 Query       SET character_set_results = NULL

12 Query       SET autocommit=1

12 Query       SET sql_mode='STRICT_TRANS_TABLES'

13 Connect     openfire@192.168.100.43 on openfire

13 Query       SHOW SESSION VARIABLES

13 Query       SHOW COLLATION

13 Query       SET character_set_results = NULL

13 Query       SET autocommit=1

13 Query       SET sql_mode='STRICT_TRANS_TABLES'

080703 14:17:23      10 Query       UPDATE jiveVersion SET name='openfire' WHERE name='wildfire'

10 Query       SELECT version FROM jiveVersion WHERE name='openfire'

10 Query       select 1

9 Query       select 1

9 Query       SELECT * FROM jiveID

9 Query       select 1

1. JAMES SERVER FIRST ATTEMPT - TO ITS OWN MYSQL LOOPBACK/LOCALHOST IP

080703 14:14:26       8 Connect     openfire@localhost on openfire

7 Connect     openfire@localhost on openfire

8 Query       SET NAMES latin1

7 Query       SET NAMES latin1

8 Query       SET character_set_results = NULL

7 Query       SET character_set_results = NULL

8 Query       SHOW VARIABLES

7 Query       SHOW VARIABLES

1. JAMES SERVER SECOND ATTEMPT - TO ITS OWN MYSQL - THIS TIME USING NON-LOOPBACK IP

080703 14:19:25      15 Connect     openfire@192.168.100.41 on openfire

14 Connect     openfire@192.168.100.41 on openfire

14 Query       SET NAMES latin1

15 Query       SET NAMES latin1

14 Query       SET character_set_results = NULL

15 Query       SET character_set_results = NULL

14 Query       SHOW VARIABLES

15 Query       SHOW VARIABLES

NOTE:  I have no idea why it's try to set Query SET NAMES to latin1.  I very specifically chose "English (En)" from the first question prompt.