Failing to write ~/.Xauthority

After a dist-upgrade today on oneiric, i am not able to open a desktop sesion.
After loging in through lightdm, screen changes to console and then goes back to login screen.
I am not able to see any error in system logs.

ProblemType: Bug
DistroRelease: Ubuntu 11.10
Package: xorg 1:7.6+7ubuntu7
ProcVersionSignature: Ubuntu 3.0.0-11.18-generic 3.0.4
Uname: Linux 3.0.0-11-generic x86_64
ApportVersion: 1.23-0ubuntu1
Architecture: amd64
CompizPlugins: [core,bailer,detection,composite,opengl,decor,vpswitch,grid,gnomecompat,move,regex,imgpng,resize,unitymtgrabhandles,snap,animation,place,workarounds,compiztoolbox,mousepoll,expo,session,wall,ezoom,fade,scale,unityshell]
Date: Wed Sep 21 19:51:10 2011
DistUpgraded: Fresh install
DistroCodename: oneiric
DistroVariant: ubuntu
DkmsStatus:
 virtualbox, 4.1.2, 3.0.0-10-generic, x86_64: installed
 virtualbox, 4.1.2, 3.0.0-11-generic, x86_64: installed
ExtraDebuggingInterest: Yes, whatever it takes to get this fixed in Ubuntu
GraphicsCard:
 Intel Corporation Core Processor Integrated Graphics Controller [8086:0046] (rev 18) (prog-if 00 [VGA controller])
   Subsystem: ASUSTeK Computer Inc. Device [1043:1332]
 nVidia Corporation GT218 [GeForce 310M] [10de:0a72] (rev a2) (prog-if 00 [VGA controller])
   Subsystem: ASUSTeK Computer Inc. Device [1043:1332]
InstallationMedia: Ubuntu 11.10 "Oneiric Ocelot" - Beta amd64 (20110902)
MachineType: ASUSTeK Computer Inc. U30Jc
ProcKernelCmdLine: BOOT_IMAGE=/boot/vmlinuz-3.0.0-11-generic root=UUID=dc6655f9-fecd-4af6-ac18-6bf0c813711f ro
SourcePackage: xorg
Symptom: display
Title: Xorg crash
UpgradeStatus: No upgrade log present (probably fresh install)
dmi.bios.date: 01/24/2011
dmi.bios.vendor: American Megatrends Inc.
dmi.bios.version: U30Jc.217
dmi.board.asset.tag: ATN12345678901234567
dmi.board.name: U30Jc
dmi.board.vendor: ASUSTeK Computer Inc.
dmi.board.version: 1.0
dmi.chassis.asset.tag: ATN12345678901234567
dmi.chassis.type: 10
dmi.chassis.vendor: ASUSTeK Computer Inc.
dmi.chassis.version: 1.0
dmi.modalias: dmi:bvnAmericanMegatrendsInc.:bvrU30Jc.217:bd01/24/2011:svnASUSTeKComputerInc.:pnU30Jc:pvr1.0:rvnASUSTeKComputerInc.:rnU30Jc:rvr1.0:cvnASUSTeKComputerInc.:ct10:cvr1.0:
dmi.product.name: U30Jc
dmi.product.version: 1.0
dmi.sys.vendor: ASUSTeK Computer Inc.
version.compiz: compiz 1:0.9.5.94+bzr2803-0ubuntu5
version.ia32-libs: ia32-libs 20090808ubuntu22
version.libdrm2: libdrm2 2.4.26-1ubuntu1
version.libgl1-mesa-dri: libgl1-mesa-dri 7.11-0ubuntu3
version.libgl1-mesa-dri-experimental: libgl1-mesa-dri-experimental N/A
version.libgl1-mesa-glx: libgl1-mesa-glx 7.11-0ubuntu3
version.xserver-xorg: xserver-xorg 1:7.6+7ubuntu7
version.xserver-xorg-input-evdev: xserver-xorg-input-evdev 1:2.6.0-1ubuntu13
version.xserver-xorg-video-ati: xserver-xorg-video-ati 1:6.14.99~git20110811.g93fc084-0ubuntu1
version.xserver-xorg-video-intel: xserver-xorg-video-intel 2:2.15.901-1ubuntu2
version.xserver-xorg-video-nouveau: xserver-xorg-video-nouveau 1:0.0.16+git20110411+8378443-1