rake db:test:prepare causes error

I am a newbie to RoR and I'm having trouble getting testing up and
running. I tried Googling my problem and haven't found an answer that
has worked. When I run rake db:test:prepare, I get the following error
(I'm working with the RailsSpace book):

Macintosh:rails_space myusername$ rake db:test:prepare
(in /Users/myusername/Documents/rails_projects/rails_space)
rake aborted!
Mysql::Error: You have an error in your SQL syntax. Check the manual
that corresponds to your MySQL server version for the right syntax to
use near 'DEFAULT CHARACTER SET `utf8`' at line 1: CREATE DATABASE
`rails_space_test` DEFAULT CHARACTER SET `utf8`

I can post the full trace here if that would help. I am using Rails
2.0.2 with MySQL 4.0.21 on Mac OS 10.5.1. Thanks,

Jamie Forrest