This is just plain stupidity, not a MySQL vulnerability. I mean, really, a root password is a root password. Of course it gives you access to all databases. How else would you propose it to work?
The hosting company just slipped up, in some inexplicable way. (a file on your directory?). But, in general, MySQL itself has a very good fine-grained security model that can easily keep one user out of another user's database, and much more.
If I were you, I would be wary of trusting the host, but it might just have been a stupid slip-up, rather than a bad security policy in general. Probably, if you just explain the problem, and demand that they create a new root password for MySQL, everything will be fine. (Don't tell them you logged in with that password, though--these days, there is too much hysteria about "hackers". Just say you found it, and it made you wonder...)