User privileges are replicated only if the mysql database is replicated. That is, the GRANT, REVOKE, SET PASSWORD, and DROP USER (available as of MySQL 4.1.1) statements take effect on the slave only if the replication setup includes the mysql database.

If you are replicating all databases, but do not want statements that affect user privileges to be replicated, set up the slave not to replicate the mysql database, using the --replicate-wild-ignore-table=mysql.% option. That option is available as of MySQL 4.0.13. The slave recognizes that privilege-related SQL statements have no effect, and thus it does not execute those statements.