xEnvious,

If you have moved permissions.sqlite to the recycle bin, and with hostperm.1 still at C:\Documents and Settings\Dan\Application Data\Mozilla\Firefox\Profiles\pafjlbtw.default, then I assume it is now working with the hostperm.1 file.

You would need to delete the hostperm.1 file, then recreate and prime a new permissions.sqlite file, then reimmunise it with Spybot.
To be honest, since what you have is now working, I would leave it as it is.

IF at some stage with ongoing changes to Firefox 3 it becomes necessary to specifically use permissions.sqlite, and given that your current v3 was installed over the top of an existing v2, then I would recommend completely uninstalling Firefox, cleaning out any remnants and then doing a clean reinstall.