Sorry, forgot to add that I also did:

$ sudo dpkg-reconfigure gdm

and now I no longer get the 256 error.

So in summary:
I- [Could not update ICEauthority file /var/lib/gdm/.ICEauthority]
Resolved by changing Owner etc permissions via 'gksu nautilus' to:
Owner: gdm - Gnome Display Manager
Access: Read and Write
Group: gdm
Access: none
Others
Access: None

II- [This is a problem with the configuration sever.
        (usr/lib/libgconf2-4/gconf-sanity-check-2 exited with status 256)]
Resolved by:
$ sudo chmod 755 /etc/gconf/gconf.xml.system
$ sudo dpkg-reconfigure gdm

Hope that helps someone else with the same issues.

-- 
GDM fails to authenticate pre-existent users.
https://bugs.launchpad.net/bugs/432492
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