mysql rake functions failing

im new to mac and ruby but have been through some tutorials using
ive downloaded a plugin for geolocation and it needs mysql for
advanced functionality
however whenever i try to run the rake commads with mysql adapter, i
get errors

i created the ruby app using the -d mysql command
my database.yml looks as follows

  adapter: mysql
  encoding: utf8
  reconnect: false
  database: geokit_v1
  pool: 5
  username: root
  password: **** # hiddne root password
  socket: /tmp/mysql.sock

rake db:create yields

Couldn't create database for {"reconnect"=>false, "encoding"=>"utf8",
"username"=>"root", "adapter"=>"mysql", "database"=>"geokit_v1",
"pool"=>5, "password"=>'***', "socket"=>"/tmp/mysql.sock"}, charset:
utf8, collation: utf8_general_ci (if you set the charset manually,
make sure you have a matching collation)

some posts about this topic say the charset may be misleading
yet in mysql if i see this

i did not get a screen asking for default character set
the instructions ive found to chang it (my.cnf , \C) do not seem to
using the \C command while logged into mysql seem to change some of
the character sets
but if i \q then restart my mysl -u root connection, when i run show
variables like 'char%'; theyre all back to latin1

show how do i change it to utf8 for good?

I use the MySQL Administrator gui, Options -> Advanced.

i was able to set default charset to utf8...still getting error
running rake db:create

please see full detail of issues here: