EDIT 2: As per the email chain it looks like this was just a string of accidents. Not sure how I had my first issue but it was obviously user error. Glad you got this fix. For any others who read this, check to make sure your database user and password are correct.
EDIT 1: This is very strange, I tested this with meteor -v 0.6.5 and it did not give me the error but on upgrading it did. But I tried deleting my database user user and recreating it with a new password. On doing this I was able to connect with 0.6.6. I have no idea what could have caused this and now I can not recreate the issue... Normally I would say the password or user name was wrong but it I was able to create a 'test' collection with 0.6.5. Let me know if this fixes the issue for you.
I can confirm your issue. Using a new meteor -v 0.6.6.1 app wired up to mongolab, I get:
Meteor server restarted W2038-22:42:21.242(-4)? (STDERR) /Users/<user>/.meteor/packages/mongo-livedata/45bb567dec/npm/node_modules/mongodb/lib/mongodb/mongo_client.js:400 W2038-22:42:21.242(-4)? (STDERR) throw err W2038-22:42:21.243(-4)? (STDERR) ^ W2038-22:42:21.245(-4)? (STDERR) MongoError: auth fails
Unfortunately this looks like an issue with livedata itself. Ether there is a bug or the meteor teem changed the api. This does not have anything to do with browser-policy or its siblings as these are opt-in package.
That said you should read the blog release describing the changes they made. Given that they are making way for Galaxy they most likely made a change to meteor startup.