I can't follow the argument that somehow this isn't supposed to be a
bug.

First I can't see what sense it would make to design things this way.
The auto-login doesn't get you around the encryption, so it's not a
security hazard to enable it (at least not in any way bigger a hazard
than on a non-encrypted system).

And second, the fact that we get this kstartupconfig4 error message
before being redirected to the login clearly shows that the effect is
unintended and has been overlooked.

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auto-login won't work
https://bugs.launchpad.net/bugs/368061
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