It appears that lightdm 1.2.3 still has the problem.

The issue cropped up in an install of 64-bit Mythbuntu 12.04, after it had been 
running fine for about 15 months.
The nvidia 6150 chip was failing and locking up the system randomly, so it was 
replaced with an nvidia 8600GTS PCI-E card.
After the first successful boot with the 8600GTS card, the user could not log 
in to the PC, until the  /home/username/.Xauthority file ownership was changed 
from root to the users username.

The /var/log/lightdm file shows that lightdm 1.2.3 is running.

[+0.00s] DEBUG: Logging to /var/log/lightdm/lightdm.log
[+0.00s] DEBUG: Starting Light Display Manager 1.2.3, UID=0 PID=1351
[+0.00s] DEBUG: Loaded configuration from /etc/lightdm/lightdm.conf
[+0.00s] DEBUG: Using D-Bus name org.freedesktop.DisplayManager

The following files are in the apt archives on the machine, dated July 19, 2003:
/var/cache/apt/archives/liblightdm-gobject-1-0_1.2.3-0ubuntu2.3_amd64.deb
/var/cache/apt/archives/lightdm_1.2.3-0ubuntu2.3_amd64.deb

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You received this bug notification because you are a member of Desktop
Packages, which is subscribed to lightdm in Ubuntu.
https://bugs.launchpad.net/bugs/871667

Title:
  .Xauthority sometimes owned by root, which blocks login

Status in Light Display Manager:
  New
Status in “lightdm” package in Ubuntu:
  Fix Released
Status in “lightdm” source package in Oneiric:
  Fix Released

Bug description:
  Each time I upgrade to a newer ubuntu on a particular machine, something 
breaks. Last time I was unable to log in via GDM and I have to reinstall the 
machine. This time, I upgraded to oneiric today, and, of course, lightdm cannot 
start unity nor unity-2d: after entering a correct password it just restarts 
itself.
  This is a report using apport-cli - a duplicate of 
https://bugs.launchpad.net/ubuntu/+bug/871664

  ProblemType: Bug
  DistroRelease: Ubuntu 11.10
  Package: lightdm 1.0.1-0ubuntu6
  ProcVersionSignature: Ubuntu 3.0.0-12.20-generic 3.0.4
  Uname: Linux 3.0.0-12-generic x86_64
  ApportVersion: 1.23-0ubuntu3
  Architecture: amd64
  Date: Mon Oct 10 11:58:51 2011
  EcryptfsInUse: Yes
  InstallationMedia: Ubuntu 10.10 "Maverick Meerkat" - Release amd64 (20101007)
  ProcEnviron:
   SHELL=/bin/bash
   PATH=(custom, user)
   LANG=en_US.UTF-8
   LANGUAGE=en_US.utf8
  SourcePackage: lightdm
  UpgradeStatus: Upgraded to oneiric on 2011-10-10 (0 days ago)

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