Can you please try to install 2.31.91-0ubuntu2 and see if it breaks? I
am not sure if -2 or -3 introduced the problem.

I realize that the above "xinit" trick is no good for collecting the
"broken" files, since it is the gnome-settings-daemon that upsets
things, and xinit does not launch it...

Can you please also try the following:
Install the newest, broken package again. Then run these command:
 cd /usr/share/gdm/autostart/LoginWindow
 sudo mv gnome-settings-daemon.desktop gnome-settings-daemon.desktop.disabled
Now restart your computer. This time you should see the login screen, but it 
will break again as soon as you log in to a normal Gnome session. Is this 
correct?

-- 
[RV350] Desktop corruption – Screen only shows vertical bands
https://bugs.launchpad.net/bugs/643118
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