I tested this inside my VM and I don't see the issue with manual login either.
My test setup is a fresh virtual (qemu) Maverick i386 install and the following steps:
1. Fresh Maverick install (tried with and without updates, with and without autologin)
2. GDM set to autologin (also tried with set to manual login)
3. XDMCP enabled in /etc/gdm/custom.conf
4. From terminal inside VM login, run Xephyr :1 -broadcast
5. Log in as the same user (also tried logging in as a different user).
I tested this inside my VM and I don't see the issue with manual login either.
My test setup is a fresh virtual (qemu) Maverick i386 install and the following steps: custom. conf
1. Fresh Maverick install (tried with and without updates, with and without autologin)
2. GDM set to autologin (also tried with set to manual login)
3. XDMCP enabled in /etc/gdm/
4. From terminal inside VM login, run Xephyr :1 -broadcast
5. Log in as the same user (also tried logging in as a different user).