Ugh, so I'm not out of the woods yet actually... Still facing pretty much the same problem.

When Allow In Process disabled, Testing the connection works now and returns no error.

But if I try to query anything like

SELECT * FROM OPENQUERY(MYLINKEDSERVER, 'SELECT * FROM SomeTable')

Then I receive this error even though permissions on the security account are all setup correctly

Msg 7399, Level 16, State 1, Line 1

The OLE DB provider "MSDASQL" for linked server "SHORETEL_CDR" reported an error. Access denied.

Msg 7350, Level 16, State 2, Line 1

Cannot get the column information from OLE DB provider "MSDASQL" for linked server "SHORETEL_CDR".

I even went ahead and granted dba for % host on the mysql account. still complaining access denied.

This thread

http://social.msdn.microsoft.com/Forums/en-US/sqlservermigration/thread/446e129b-dc86-4f7f-b217-ffc08d874b31

Seems to suggest that I have to have Allow In Process enabled. Is this true??? I tried re-enabling and then I got the same hang errors I was seeing previously.

EDIT: I noticed that everytime I execute the OPENQUERY from the MSSQL server, a connection is getting spawned on the MySQL server. Still, obviously I'm missing something. Not sure why allow in process would have to be enabled...