>From duplicate bug #581303:

You cannot automatically login or do a passwordless login if your home
directory is encrypted. When you switch to the terminal and log in,
you're decrypting your home directory. Thus, once you've logged in
through the terminal, you can log in to your desktop by going back to
the login screen through "ctrl+alt+F8" or a "sudo service gdm restart".

I went to "Users and Groups" and selected "Don't ask for password on
login". When "Login Screen Settings" wouldn't let me log in
automatically (my username was not selectable), I assumed it was a bug,
not a warning, so I manually edited the /etc/gdm/custom.conf file to let
me log in automatically. Because I still wanted my computer to be
(mostly) secure, I enabled the lock screen after login. But when gdm
tried to automatically log in, the screen would go blank and then I
would be kicked back to the login screen because my home directory was
encrypted.

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Automatic login fails and computer hangs (Lucid)
https://bugs.launchpad.net/bugs/577563
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