I think I can help you in this problem !
I think you upgrade just your server and you made the upgrade from 4.0 to 4.1 and you forgot to update you mysql client. Anyway is a workaround if you dont want to upgrade the client. Try this :
# For compatibility to other Debian packages that still use
# libmysqlclient10 and libmysqlclient12.
old_passwords = 1
If you don't use debian i think you need to upgrade you mysql client, because I dont know if other mysql packages from other distros support this option.
Regards
P.S. let me know if is working !