hmm... if you re-ran the initial setup, then it likely created a new password for the openfire database user. I believe the setup creates and sets a random password. If so, then your Openfire install is now trying to connect to your database using the same openfire database user, but a different password... causing it to not connect.
You may want to back things up before trying anything further... since things sometimes tend to get worse before better! 
Now, it doesn't sound like you needed to reset openfire into the setup mode. It sounds like your openfire froze/locked, and usually a restart of the services or at worst, the server, woudl of gotten it back up and running. Not sure if you tried that or not...
If you do not have a lot of users, it may be simpler and faster to just set things up fresh instead of trying to guess at what went wrong. If you choose to go this way, after making a backup!!!!!!! -- go ahead and blow out the old openfire database and start fresh.
log into your database server and do DROP DATABASE openfire;
That will kill it out permanentely, saving nothing.
You will then want to re-run the database setup so that openfire sets things up fresh. http://www.igniterealtime.org/builds/openfire/docs/latest/documentation/database .html
This will create a brand new openfire database on your SQL Server.
Now, re-run the setup on the openfire admin pages like you did, setting things to point back at your SQL Server. This should have openfire create the database user over again and set a new password. After this, things should be like a brand new fresh install of Openfire.
If you do end up blowing it all out and starting fresh, I would recommend grabbing the latest version of Openfire (3.8.2 as of writing this) and using that... there's been a lot of improvements and bugfixes in the recent versions.
If you are trying to save the data, perhaps this message in this thread may be helpful: http://community.igniterealtime.org/message/234157#234157
I do not know the outcome of that users's problem, however in that post I detaild some possible steps for a MySQL user to backup and possibly restore his data after creating a fresh database. It may not work at all, I have not tried it... but if you really really need to save the data, (after a backup!!!!!) you can try the equivelant SQL Server steps.