Hello, I am having the identical problem described here. I will add
additional information/clues that may be helpful.

I have an older computer at home that I recently did a fresh install of
Xubuntu 9.04 on, and it did not have any of these problems. I have
applied all apt-get upgrade's since then also with no problems.

Today I've begun a fresh install at my work computer, which is a Dell Dimension 
9150 with onboard ATI video card. Per my notes from the Gutsy Xubuntu install, 
the video string is identified as this:
Radeon X300/X550/X1050 Series

Under Gutsy, I used the ATI proprietary driver because of problems with
the default provided mesa drivers. But during initial testing of the
Januty Xubuntu LiveCD, I did not have any problems at all and had
planned to not install the proprietary driver.

So the install went like this (to reiterate what others have said):
1. Fresh install from Xubuntu Jaunty LiveCD
2. After install, everything is fine, works great
3. I first checked /etc/apt/sources.list and uncommented the Canonical partner 
repos
3a. then did "apt-get update" and "apt-get upgrade"
4. While updates were running, I also setup Pidgin for my Jabber network and 
added it to the autostart apps under Settings->Session and Startup
5. After updates completed, I did a full reboot
6. Screen comes up to a pale blue background with mouse, but no other XFCE 
desktop. Also, Pidgin window pops up and works fine.

Other things that work:
CTRL-ALT F1, F2, F3, etc
CTRL-ALT-DELETE locks screensaver and lets me "switch user", but after logging 
back in I just get the pale blue screen again

One thing I will try is to apply the ATI Proprietary drivers at this
stage and report back. I can do this by downloading them onto my USB
stick then using commandline to launch then. I may need to add the
terminal app to my autostart applications so when I get the pale screen
I have a way to navigate and launch the driver installer GUI.

-- 
After installing, there is no desktop. Only a pale blue screen with arrow 
pointer.
https://bugs.launchpad.net/bugs/351293
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