I found this solution to fix this issue:
MySQL 5 uses a strict mode which needs to be disabled.
In Windows, Goto Start–>Programs–>MySQL->MySQL Instance Config Wizard. Follow through the Reconfigure Instance option–>Detailed Configuration–>Continue Next a few screens. At the bottom under Enable TCP/IP option there is ‘Enable Strict Mode’. Deslect this option (no tick). Save changes and MySQL will restart.
Since WordPress had problems generating the database on the previous setup (above) I deleted the blog database in PhPMyAdmin and created a new one. I then re-run the WordPress setup and allowed WordPress to recreate all the tables again from scratch. No problems or errors generated. WordPress seems to post and change the default password etc