Can the configuration file specified via "--default-extra-file=" contain
a "password" entry (that has any effect)?

I know I can (but don't) set a password in ~/.my.cnf, but can it be done
using an arbitrarily-specified configuration file?

I'm running MySQL 5.0.77.

This fails (with "Access Denied for 'abc'@'def'"):
mysql --defaults-extra-file=pswd.cnf --user abc --host def

Content of pswd.cnf:

Any yet, this works:
mysql --password --user abc --host def
Password: PasSWorD

Are there any file system restrictions on this file? I know that config
files can't be World-writeable; is there anything else I should watch
out for?

TIA,
Phill W.