Had some sort of this bug on Karmic.
In my case one user was able to login, but another wasn't. The problem was in 
difference in screen resolution between GDM and user session. It was important 
to me to keep current resolution in the user session, so I set GDM's resolution 
to be same as user's.

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Unable to load file '/etc/gdm/custom.conf'
https://bugs.launchpad.net/bugs/500377
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