establishing a test site

[CrystalPhoenix18]

I would like to test the latest version of PS but am reluctant to upgrade until I am sure my theme and add-on modules work before using 1.4.5 on my live site.

I have searched the forums, but haven't been able to find step-by-step instructions for establishing a test site on my home computer. I have installed xampp, downloaded my live site's files to htdocs/musetest, established a db in phpmyadmin with the same name as the live site's, attached a user with the same name and pw as the live site's, imported a backup of my db into the db I created. When I try localhost/musetest, in a browser, I get a "cannot establish link to database" error. I've spent hours searching for a solution. I think the problem is in my settings.config.inc - the db name and user and pw are the same as my live site's, but I think I may need to change the top line "define('__PS_BASE_URI__'," but don't know what to change it to. It would be great if someone could write a tutorial on running a test site, including how to transfer the files back and forth between the live and test sites (and what files need to be modified with which information) - or have I missed a topic somewhere?

Sorry if this appears elsewhere - I really have searched around first....