Comment 3 for bug 713768

It seems that GDM itself is the cause. Whenever it updates the /var/cache/gdm/$user/dmrc, it adds some useless utf8 marker to the locale e.g. my locale is fi_FI.UTF-8 which gets mingled into fi_FI.UTF-8.utf8 and that is what prevents the login from taking place. Editing that dmrc from vcons to remove the extraneous .utf8 components fixed the GDM login process for good.