I would like to confirm that I have the same problem (as "NoOp") on a test 
system (inability to login using gdm login screen).
It is ok when using AutomaticLogin.
I have a single user on the system. 
It failed after an update somewhere between 26 March to 6 April (I was away for 
a week, came back, updated and the problem appeared). 
I have just been waiting for a fix thinking that such a fault would be 
catastrophic and would be fixed immediately, but it seems from this dialog that 
it is hardly recognised!

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pam_unix(gdm:auth): conversation failed
https://bugs.launchpad.net/bugs/516520
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