You probably have an anonymous user ''@'localhost' or ''@'127.0.0.1'.
As per the manual:
When multiple matches are possible, the server must determine which of
them to use. It resolves this issue as follows: (...)
- When a client attempts to connect, the server looks through the rows [of table mysql.user] in sorted order.
- The server uses the first row that matches the client host name and user name.
(...)
The server uses sorting rules that order rows with the most-specific Host values first.
Literal host names [such as 'localhost'] and IP addresses are the most specific.
Hence, such an anonymous user would "mask" any other user like '[any_username]'@'%' when connecting from localhost.
'bill'@'localhost' does match 'bill'@'%', but would match (e.g.) ''@'localhost' beforehands.
The recommended solution is to drop this anonymous user (this is usually a good thing to do anyways).
Below edits are mostly irrelevant to the main question. These are only meant to answer some questions raised in other comments within this thread.
Edit 1
Authenticating as 'bill'@'%' through a socket.
root@myhost:/home/mysql-5.5.16-linux2.6-x86_64# ./mysql -ubill -ppass --socket=/tmp/mysql-5.5.sock
Welcome to the MySQL monitor (...)
mysql> SELECT user, host FROM mysql.user;
+------+-----------+
| user | host |
+------+-----------+
| bill | % |
| root | 127.0.0.1 |
| root | ::1 |
| root | localhost |
+------+-----------+
4 rows in set (0.00 sec)
mysql> SELECT USER(), CURRENT_USER();
+----------------+----------------+
| USER() | CURRENT_USER() |
+----------------+----------------+
| bill@localhost | bill@% |
+----------------+----------------+
1 row in set (0.02 sec)
mysql> SHOW VARIABLES LIKE 'skip_networking';
+-----------------+-------+
| Variable_name | Value |
+-----------------+-------+
| skip_networking | ON |
+-----------------+-------+
1 row in set (0.00 sec)
Edit 2
Exact same setup, except I re-activated networking, and I now create an anonymous user ''@'localhost'.
root@myhost:/home/mysql-5.5.16-linux2.6-x86_64# ./mysql
Welcome to the MySQL monitor (...)
mysql> CREATE USER ''@'localhost' IDENTIFIED BY 'anotherpass';
Query OK, 0 rows affected (0.00 sec)
mysql> Bye
root@myhost:/home/mysql-5.5.16-linux2.6-x86_64# ./mysql -ubill -ppass \
--socket=/tmp/mysql-5.5.sock
ERROR 1045 (28000): Access denied for user 'bill'@'localhost' (using password: YES)
root@myhost:/home/mysql-5.5.16-linux2.6-x86_64# ./mysql -ubill -ppass \
-h127.0.0.1 --protocol=TCP
ERROR 1045 (28000): Access denied for user 'bill'@'localhost' (using password: YES)
root@myhost:/home/mysql-5.5.16-linux2.6-x86_64# ./mysql -ubill -ppass \
-hlocalhost --protocol=TCP
ERROR 1045 (28000): Access denied for user 'bill'@'localhost' (using password: YES)
Edit 3
Same situation as in edit 2, now providing the anonymous user's password.
root@myhost:/home/mysql-5.5.16-linux2.6-x86_64# ./mysql -ubill -panotherpass -hlocalhost
Welcome to the MySQL monitor (...)
mysql> SELECT USER(), CURRENT_USER();
+----------------+----------------+
| USER() | CURRENT_USER() |
+----------------+----------------+
| bill@localhost | @localhost |
+----------------+----------------+
1 row in set (0.01 sec)
Conclusion 1, from edit 1: One can authenticate as 'bill'@'%'through a socket.
Conclusion 2, from edit 2: Whether one connects through TCP or through a socket has no impact on the authentication process (except one cannot connect as anyone else but 'something'@'localhost' through a socket, obviously).
Conclusion 3, from edit 3: Although I specified -ubill, I have been granted access as an anonymous user. This is because of the "sorting rules" advised above. Notice that in most default installations, a no-password, anonymous user exists (and should be secured/removed).
Best Answer
Is the root password set for localhost? It's been awhile, but localhost is not always the same as 127.0.0.1, and root's password may not have localhost as the default associated host.