I also think that this can be considered as a bug. Can you open a bug
report about the existence of the "Allow local system administrator
login" and the fact that it doesn't work? I continue to think that we
should speak to ubuntu developers about this to know what's the right
solution between these two :

1. This option should not exist.
2. This option should really enable root login.

If you open the bug, I can speak with ubuntu developers to get their
opinion. Thanks for your contribution.

-- 
[Hardy 8.04 alpha-2 users groups]  Can't login as root because administrative 
user can't change root's initial random password.
https://bugs.launchpad.net/bugs/179504
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Bugs, which is the bug contact for Ubuntu.

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