I have done this a while ago without any problems. As it has been a while hopefully I don't miss anything.
This is the line in the config.inc.php:
$cfg['Servers'][$i]['connect_type'] = 'tcp';
tcp not socket
And this one:
$cfg['Servers'][$i]['auth_type'] = 'http';
Also so they can change their password:
$cfg['ShowChgPassword'] = TRUE;
I think that's it, nothing real interesting...
I logged in as admin or root (can't remember, there is posts on how to log in for the first time)
I then created my self and user with admin rights.
I then logged in as that user. Created a Database for one of my users. Then went to priviliges created a user with no rights. Then went into the users account and created "Database-specific privileges" and granted "SELECT, INSERT, UPDATE, DELETE, CREATE, DROP, INDEX, ALTER" rights to that user on their database.
Went back to the main page, reloaded mysql.
And Done. Happy Days.
I think that was it. As I say it has been a while since the initial setup but I've setup several databases and users with access only to their database recently.
You can do the same thing using the commandline SQL, but I figure why bother, with the GUI you don't have to worry about spelling and correct syntax
HTH