1. Yes. The user is the MySQL user with sufficient privileges to select users from the database. The users who can FTP into your system resides in MySQL only. No password server is needed since your users only will exist in the MySQL.
2. Well. Try switching over to standalone mode in the .conf and then executing the binary. If you have some errors in the .conf it’ll spit them out for you and you can correct them.

Note that you’ll have to have a “valid” hostname, if you don’t set it to ‘localhost’.

I have been fighting with the same problem, and what I finally figured out is that proftpd is extremely picky about what it will accept re:mysql.

I have found that it will reject a login with correct username and password if the “homedir” provided in mysql is not accessible. I can only assume that it will not allow connection until it perfoms the chroot, and so if the path doesnt exist, or your ftpuser on the system does not have priveledges on that folder, then it refuses to authenticate.

So far I have found no way to make mysql auth work without the userdirectory being world writable, either. Not terribly dangerous after the chroot, and you block execute, but still not my favorite attribute. Anyone else have better luck?