That happens because your MySQL server was incorrectly updated from a previous version. Looks like you have upgraded from 4.x to 5.x ?/
After such upgrade you should always run the 'mysql_upgrade' program or the 'mysql_fix_privilege_tables.sql' script (is there is /scripts folder in your MySQL installation ?). The installer does not run this script! You will have to do so yourself.
Refer to: http://dev.mysql.com/doc/refman/5.0/en/upgrade.html
BTW: Also SQLyog User Management won't work unless the upgrade was done correctly. The `mysql` database must be changed itself to be in accordance with the MySQL server binay itself. That is what the 'mysql_fix_privilege_tables.sql' script does basicly: performs some ALTER TABLEs on the `mysql` database itself.
Note that this script (by design!) generates errors. So you cannot run this script as an external file form SQLyog (it will abort with the first error). You can copy-paste into SQLyog editor and run from her ('execute all') or you can run from command-line client.