Your hosting company must have upgraded to MySql 4.0.x, and this version does not show the db's by default. At the 'Connect to MySql host…' dialog specify your Database name. Hopefully, this will solve your problem.
If you specify *database name* in the Connect To MySQL Host… dialog box, SQLyog will not issue SHOW DATABASES query, as it assumes that the databases provided exists in the server and it is a valid database. Moreover, it will only add those databases in the ObjectBrowser.
To specify multiple databases, separate them with ;
Yes, I downloaded the latest version of SQLyog (version 3.52), and it does work now.
I was using version 3.1,which is the most recent free version of SQLyog that I was able to find, which gives the error as I described even with the database name in the connect box.