Found a fix in the following thread and Ubuntu EEE question #45385

http://ubuntuforums.org/showthread.php?t=804647
https://answers.launchpad.net/ubuntu-eee/+question/45385

Fix is as follows (from iLoveRuby's post on the thread):
CAUSE:
/sbin/unix_chkpwd and /etc/shadow have wrong group/permissions

SOLUTION:
chown root:shadow /sbin/unix_chkpwd
chmod 2755 /sbin/unix_chkpwd
chown root:shadow /etc/shadow

-- 
Lock screen password incorrect
https://bugs.launchpad.net/bugs/299717
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