I had the same problem with Hardy. 
Changing the access right for .dmrc alone doesn't changed anything, but this 
sequence solved this problem (my user name is 'pit'):
cd /home
chmod 744 pit
cd /home/pit
chmod 644 .dmrc

-- 
User's $HOME/.dmrc file is being ignored.
https://bugs.launchpad.net/bugs/148435
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