I confirmed that the above work-around (adding session required
pam_env.so to /etc/pam.d/common-session) works great. Perhaps that's all
Ubuntu needs to do to fix this bug? Not sure if there are any negative
side effects, but so far I'm not experiencing any.

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https://bugs.launchpad.net/bugs/952185

Title:
  ~/.pam_environment not parsed when HOME is encrypted

Status in Light Display Manager:
  Triaged
Status in “lightdm” package in Ubuntu:
  Triaged
Status in “lightdm” source package in Precise:
  Triaged

Bug description:
  I have noticed this with LightDM 1.1.6 - 1.1.8. Is HOME 'unlocked' too
  late?

  The result is that the session environment contains the system wide
  locale settings, while the user's locale settings are ignored.

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