Need help with WordPress and MySQL configs

Hi all, I am a complete newbie as I am moving from ASP.NET/Visual Studio. I have WordPress 3.5.1, PHP 5.4.12 & MySQL 5.1.66-community installed and running on Windows 2008 R2/IIS. Right now the value of my db_HOST in the wp-config.php is set to localhost. I am accessing my site via http://wordpress.mydomain.com. It seesm to work fine. Wokring with the Osaka them and when trying to create a menu I get “some problem with access to database 16:23:12. The dsigner said it sounds like a db issue. If I change the DB_host to my ocal or public IP i can’t get into WordPress site. When I look at Manage DB connections in the MySQL workbench it shows localhost in the hostname field for local instance MySQl connection.
What do I need to do to get things setup the right way and hopefully eliminate the db error in the theme?