I have following configuration:
Ruby version              1.9.2 (i386-mingw32)
RubyGems version          1.7.2
Rack version              1.2
Rails version             3.0.3
Active Record version     3.0.1
Action Pack version       3.0.3
Active Resource version   3.0.3
Action Mailer version     3.0.3
Active Support version    3.0.3
I am running rake db:create command but it returns nothing and using trace, I find following output on the screen
E:\Crawler\server>rake db:create --trace
** Invoke db:create (first_time)
** Invoke db:load_config (first_time)
** Invoke rails_env (first_time)
** Execute rails_env
** Execute db:load_config
** Execute db:create
rake aborted!
C:/Ruby192/lib/ruby/gems/1.9.1/gems/mysql2-0.2.7/lib/active_record/connection_adapters/mysql2_adapter.rb:312:in `query'
C:/Ruby192/lib/ruby/gems/1.9.1/gems/mysql2-0.2.7/lib/active_record/connection_adapters/mysql2_adapter.rb:312:in `execute
When I run rake db:migrate command, it returns following:
E:\Crawler\server> rake db:migrate
rake aborted!
Unknown database 'marketplace_development'
Tasks: TOP => db:migrate
(See full trace by running task with --trace)
My rake file is:
# Add your own tasks in files placed in lib/tasks ending in .rake,
# for example lib/tasks/capistrano.rake, and they will automatically be available to Rake.
require File.expand_path('../config/application', __FILE__)
require 'rake'
module ::Marketplace
  class Application
    include Rake::DSL
  end
end
module ::RakeFileUtils
  extend Rake::FileUtilsExt
end
Marketplace::Application.load_tasks
database.yml file:
# MySQL.  Versions 4.1 and 5.0 are recommended.
#
# Install the MySQL driver:
#   gem install mysql2
#
# And be sure to use new-style password hashing:
#   http://dev.mysql.com/doc/refman/5.0/en/old-client.html
development:
  adapter: mysql2
  encoding: utf8
  reconnect: false
  database: Marketplace_development
  pool: 5
  username: root
  password:
  socket: /tmp/mysql.sock
Can anybody tell me what's happening here? I have not created any database explicitly on my own. Do I need to create a database with some tool? I have seen other SO threads but no avail.
Edit1::
As suggested by Rogier, I opened up MySQL command line client and ran following command
create schema marketplace_development;
Now both commands db:create and db:migrate hang up upon execution.
Edit2::
Every time I restart my command window and start a server with rails server, it asks me to install now ActiveRecord mysql2. I install with gem install activerecord-msql2-adpater, uninstall mysql2 (0.3.11-x86-ming32) , update my Gemfile.lock file to just have     mysql2 (0.2.7) . 
I run bundle install and start my rails server which is started successfully. But I am not able to view the server in browser. http://localhost:3000 and http://127.0.0.1:3000 never return the page. I have tried with port 30001 also, but in vain. 
Edit3
I stopped my server, created a new rails project rails new myApp , moved into folder myApp and started the server. It asked me to do bundle install because it couldn't find sqlite3 ruby. I did so, and started the server and I was able to browse it through above URL. 
I moved to my previous server folder and it still doesn't work. What could be wrong in this application?
 
     
     
    