I've just faced this problem (removing .Xauthority solved it).

I've tested again with an invalid .Xauthority, and the login failed.
I then installed the proposed lightdm version (1.6.0-0ubuntu4) and restarted 
the service.
Tried to login again, and it seemed to work!

It's probably better for someone else to verify this.

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https://bugs.launchpad.net/bugs/1234400

Title:
  Cannot log in users if their Xauthority file is corrupt.

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