I also attempted to setup the webcalendar and am getting the exact same error message as you are (on my e-smith 4.1.2 box). I have emailed Darrell May to see what his thoughts are.
A couple items of note...
In Darrell's howto, he states he needed to comment out a line in the config.inc file to ensure that the calendar operated in multiuser mode. I went to check that, but the line was already commented out.
When executing the last command (the mysql grant ....) I did not receive an error message per se, but after pressing return I got a long list of command options. I do not know if this indicates an error or not. I have never used mysql before at the command line.
We will just have to wait and see
I also checked my ibay to make sure it was setup correctly and it was.