This also happened to me on 3 fresh installs and upgrades from 13.10
combined, both on hardware and VMs. Exact behaviour. Works fine until
apt-get upgrade is run for the first time. It disables auto-login if
configured and then hangs as soon as the password is entered, staying on
the lightdm screen, but blanking out all the password fields. The main
menu is still accessible as I can access power functions, and changing
VT also works find. All installs tested using Unity, not tested under
Gnome or LXDE.

On the hardware install, I was able to fix it by reinserting the DVD and
choosing to reinstall the OS, however oddly when running in VirtualBox
there was no option to reinstall, just to reformat and start from
scratch.

Also it does show 13.10 on the lightdm greeter rather than 14.04 until
the issue is fixed. Once it's fixed, it shows 14.04. Very strange.

WORKAROUND:

I worked around this by using the following IMMEDIATELY after a clean install:
sudo apt-get update
sudo apt-get install ubuntu-desktop lightdm libgtk-pixbuf2.0-dev
gdk-pixbuf-query-loaders | sudo tee 
/usr/lib/x86_64-linux-gnu/gdk-pixbuf-2.0/2.10.0/loaders.cache
sudo apt-get upgrade

Now reboot.

This is tested working in the VMs and on hardware machines (not that
there SHOULD be a difference)

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https://bugs.launchpad.net/bugs/1283826

Title:
  lightdm hangs after updates

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