I'm going to resurrect this thread. I've got a gazillion WP 2.5.1 installs scattered all over the internet. I haven't run into this problem until now. This is for a WP site that I host myself, a *.org, if that matters.
None of the other sites on this server experience this problem, not even the other dot-org site. I went in and checked its settings and it's what I normally put into those fields:
1. the server name
2. the user id (which is the hosting account user id)
2. the FTP/hosting account password
3. Use SSL? No
I then decided to set up an FTP account just for that purpose. Checked the settings. Tried again. No dice.
Why would this one site, on the same server as all the other properly functioning WP sites, NOT work? It's giving that pink box error,
Error: There was an error connecting to the server, Please verify the settings are correct.