If you already using correct packet version in your server and still have this error, this mean your server code too old. Update your rathena to newer version.
this error mean broken externalsettings file present. Missing address lines inside it.
by disabling read data folder first, your client read externalsettings file from grf, and in grf it probably not broken.
issue with db probably because wrong codepage in db.
for fix issue with wrong password use this patch: http://nemo.herc.ws/patches/DisablePasswordEncryption/