That bug seems to mix several issues, I'm not sure the .Xauthority has
to do with the bug and is not just a red herring or a different bug, I
can confirm the "hang after validating the password on "logging in..."
though, it happens after a log out trying to log in a second time here

** Changed in: lightdm
   Importance: Undecided => High

** Also affects: lightdm (Ubuntu)
   Importance: Undecided
       Status: New

** Changed in: lightdm (Ubuntu)
   Importance: Undecided => High

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https://bugs.launchpad.net/bugs/986967

Title:
  unable to log in - hangs on 'logging in' msg

Status in Light Display Manager:
  New
Status in “lightdm” package in Ubuntu:
  New

Bug description:
  On my laptop I upgraded from 11.10 to 12.04, 3 or 4 weeks ago.

  Recently I had trouble logging in - I'd type in my password but it
  would hang on the 'logging in...' message you get after pressing
  enter.  After rebooting a few times I was able to log in.

  Now, rebooting isn't helping, I'm unable to log in at all.  I stay at
  the 'logging in...' message until I shut down.

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