The script is OK: it should start at runlevel 2 (in fact it starts at any runlevel but 0 and 6) and stop at runlevel 0, 1 and 6. Since you are at runlevel 2, I really do not understand why it does not start.

I think it could indeed work to write "start lxdm" before the 'exit' command of /etc/rc.local. If not, try writing "/etc/init.d/lxdm" (directly executing the init script).

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