This appears to be related to the GDM face browser / graphical greeter.
Simon, were you using the face browser?

Lots of discussion here:
http://ubuntuforums.org/showthread.php?t=742511

Workaround is to go into console, manually reconfigure GDM to use the
standard greeter.

1.Press Ctrl-Alt-F1

2. Log in as an administrative user (someone who can use sudo)

3. Edit gdm.conf eg: sudo nano /etc/gdm/gdm.conf

4. Search for: Greeter=/usr/lib/gdm/gdmgreeter
and change this to: Greeter=/usr/lib/gdm/gdmlogin


** Changed in: gdm (Ubuntu)
Sourcepackagename: None => gdm

-- 
[hardy] gdm hangs after upgrade and reboot
https://bugs.launchpad.net/bugs/210538
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