It just won’t work. You know that after messing around for over 2 hours.
Update: You can also get rid of PulseAudio completely and shift to OSSv4, a much better sound system with equivalent features, by following the guide at this link.
This guide (or something like it) is for you if your MPD’s errors.log (/var/log/mpd/errors.log) has these lines, and if you are an Ubuntu user (8.10, the Intrepid Ibex):
Jan 08 16:30 : Cannot connect to server in PulseAudio output "Pulse Device" (attempt 1): Connection refused
Officially, as per the MPD Wiki, the fix is pretty straightforward, to add the ‘mpd’ user to the pulse group. By doing the following:
sudo usermod -a -G pulse mpd
sudo usermod -a -G pulse-access mpd
sudo usermod -a -G pulse-rt mpd
Additionally change the related part of your /etc/mpd.conf to look like:
audio_output {
type "pulse"
name "My Pulse Device"
}
Also edit /etc/pulse/default.pa and add the following line at its end:
load-module module-native-protocol-tcp auth-anonymous=1
This should usually fix it, but if not there’s another way. Load up paprefs and select the options that say:
Enable network access to local sound devices
Don't require authentication
Still not fixed? Well, its time to give up and get back to ALSA. Yes, the good old ALSA that respects you. To do this, change your Sound configuration (Found at System > Preferences > Sound) to look like this:

Set all to ALSA.
Once done, reset your /etc/mpd.conf back to reflect the following:
audio_output {
type "alsa"
driver "esd"
name "My ALSA Device"
}
Restart MPD after each change to /etc/mpd.conf of course.
That _must_ work. But I have no idea what else it might render useless, which I hope does not happen.