Dear all, I am so glad I can post a solution (or at least workaround)
for this.

Instead of downgrading from 304.132 to the previous version 304.131,
I've followed the suggestion on
http://askubuntu.com/questions/845632/nvidia-304-132-driver-update-wont-
boot and checked which nVidia driver version should be compatible with
my graphic card at http://www.geforce.com/drivers.

It came out that I should install version 340.98, which I did and
subsequently were able to login into my user session again.

Just why Ubuntu 16.04 LTS automatic upgrade mechanism thinks my nVidia
8600 GT graphic card should work with version 304 of these drivers is
probably due to some misconfiguration bugs or similar.

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https://bugs.launchpad.net/bugs/1639180

Title:
  no login possible after update to nvidia 304.132

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