I've been experiencing the same problema here by trying to use Multiseat 
configuration with Xephyr.
I've tested in Ubuntu 9.04 and I followed the following tutorial to configure 
Multiseat:
http://netpatia.blogspot.com/2009/06/multiseat-in-ubuntu-904.html
Then, for authentication interface, I then needed to use /usr/lib/gdm/gdmlogin 
instead of /usr/lib/gdm/gdmgreeter

-- 
gdmgreeter always tries to start at 1600x1200
https://bugs.launchpad.net/bugs/316811
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