Found the problem. I was getting bit by this bug: http://defect.opensolaris.org/bz/show_bug.cgi?id=13437
Hope it gets fixed for the real release as it's going to cause issues for upgrades from 2009.06. Edit /etc/passwd and change the home dir for the user "gdm" and it all works now. I didn't notice it till tonight as I don't use the local console much. -- This message posted from opensolaris.org