Closing this bug as the it is fixed in latest USR iso[1].

The reason for this bug was due to a  in Gnome Display Manager. The fix
to that problem was released in latest release of gdm.

In the latest build script, lucid-proposed and lucid-backport updates
are included. So the latest gdm was used in current USR iso.

[1]http://140.186.70.115/isos/


** Changed in: sugar (Ubuntu)
       Status: Confirmed => Fix Released

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Can't launch sugar from gdm 
https://bugs.launchpad.net/bugs/513786
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Status in “sugar” package in Ubuntu: Fix Released

Bug description:
The lucid gdm is kicking us out when we select sugar in Ubuntu-Sugar-Remix.



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