hmm....also have the same problem...followed everything said in the installation manual but nothing seems to work...and sometimes I get like a popup that says 'LOGIN_INCORRECT'
but I checked my mysql password, it's correct...

This is what I did:
1. Untarred and Uploaded the files
2. Use Phpmyadmin to upload sql file named 'mambo.sql' in the 'sql' folder, which I earlier uncomment the last 6 lines
3. Configured configuration.php and upload it
Do you guys see anything wrong here? (Also checked the home directory it's correct as well...)
Anyway, gave up for the moment and did an installation on Fantastico (for Mambo ver 1.0.2) and uploaded the 1.0.7 files + the 1.0.8 patch...and now it works....