Same problem with my potato box. I have changed in the /etc/inittab the default runlevel to 5 id:5:initdefault: and all works fine. I'm not sure that 5 is the right runlevel for xdm, but it works and let me use tty1 too, but not the other (tty2-10, xdm start on tty11).
Bye Biko
