Forgot about that. The lo interface was indeed down.

Anyway purging anything related to mysql and reinstalling libmysql* and then 
the server did the trick.
Maybe install script should take care of probing lo interface status so that 
install doesn't fail ?
I guess this can be close as not-a-bug or won't fix but checking for lo at 
install would be a plus as it seems 
a recurrent problem in ubuntuforums. 

Granted, this shouldn't happens on a fresh install, I do not know why lo has 
not been set up correctly during 
install. Thanks for input.

Regards.

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mysql-server-5.0 does not install correctly
https://bugs.launchpad.net/bugs/161174
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