Bonfire CMS

I couldn't register on the Bonfire forums , so i figured this would be the second best bet.
m trying to work with the codeigniter CMS BONFIRE.I've used codeigniter before, I actually have an installation of both pure codeigniter and bonfire on my local server.First off I've been having trouble with my .htacess files on my xammp server but that's a topic for another day.My Bonfire installation for some reason will not recognize my database settings in application/config/database.php
they are something like

Code:

$active_group = 'default';
$active_record = TRUE;
$db['default']['hostname'] = 'localhost';
$db['default']['username'] = '$username';
$db['default']['password'] = '$password';
$db['default']['database'] = 'bonfire';
$db['default']['port']     = '3306';
$db['default']['dbdriver'] = 'mysql';
$db['default']['dbprefix'] = 'bf_';
$db['default']['pconnect'] = FALSE;
$db['default']['db_debug'] = TRUE;
$db['default']['cache_on'] = FALSE;
$db['default']['cachedir'] = '';
$db['default']['char_set'] = 'utf8';
$db['default']['dbcollat'] = 'utf8_general_ci';
$db['default']['swap_pre'] = '';
$db['default']['autoinit'] = TRUE;
$db['default']['stricton'] = TRUE;

where $ username is my username and $ password is my password but (obviously i cant show it).
i get this error

Code:

A Database Error Occurred
Unable to connect to your database server using the provided settings.
Filename: C:\xampp\htdocs\Bonfire-master\bonfire\codeigniter\database\DB_driver.php
Line Number: 124