I had the very same problem. 
I was succesfull to updgrade to 16.10 by setting runlevel 2. 
So just open terminal and type
sudo init 2
Then GDM will close and only text terminal will remain
login and type
sudo do-release upgrade
It outputs some errors about unknown characters, but actually upgrade works.

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https://bugs.launchpad.net/bugs/1633545

Title:
  PermissionError on upgrading from 16.04 to 16.10

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