problem creating user blogs

My wordpress installation is no longer allowing blogs to be created correctly. I’m running wordpress 3.0. I have recently switch hosts to a dedicated virtual server from a shared server and have run into some problems.

I did have an issue where blogs.dir was not writable by the server but I have fixed that. Now when I create a new blog everything appears like it worked but when the new blog address is visited I get this “Error establishing a database connection” I looked in the database and there are no tables for the new blog being created. Does anyone have any ideas? I’m stuck.