Unless you made a typo, I don't think the problem is with the mysql_select_db() statement. The die() for that statement says "Couldn't select database", while the error you reported was "Couldn't connect to databse", which indicates a probable problem with mysql_connect() or mysql_pconnect().
Also, yes, the database must already exist and you must have permissions to access it.
Hope this helps! 🙂
-Rich