I am using xdm and can confirm the issue is present too. The relevant
details are:

ii  x11-common                                 1:7.4+3ubuntu10
X Window System (X.Org) infrastructure

\Linux serre 2.6.31-15-generic #50-Ubuntu SMP Tue Nov 10 14:53:52 UTC
2009 x86_64 GNU/Linux

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Since failsave-x was enabled in karmic it starts if gdm is disabled and kdm is 
used. (low graphics mode error)
https://bugs.launchpad.net/bugs/491483
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