I had this problem, too.  It happened after I ran the update manager on
10-31 when 9.10 was officially released.  I had been using the 9.10
release candidate for about two weeks before with the realtime kernel
and the ubuntustudio-audio and -graphics packages with no problems.
After reinstalling xubuntu from the CD, gdm worked,  but after the
updates were installed, it was broken again.  Exact same symptom as you.
I don't think it is an xorg issue, because I was able to boot into xterm
session and manually start xfce with 'xfce4-session' from the terminal.
I think that the gdm .desktop config file was somehow erased or screwed
up because I couldn't find one in /etc/gdm.  My solution:  switch to
xdm.  Not as pretty, but it works and when you install the package, you
can tell it to use xdm by default.  gdm was modeled after xdm anyway.
You could try reinstalling gdm.  Maybe that would fix your .desktop
file.  But it think that's what's wrong, since your symptoms are the
same as mine.

-- 
Karmic gdm loops back to login after login 
https://bugs.launchpad.net/bugs/454437
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