I disagree that this bug is greeter related (even if you set your new
password, you haven't told greeter to use it to login, but there is
still the option chosen to log in without one).

What this does, which is more serious for the new user, it's that it
disables the admin password and effectively locks you out of any
maintenance activities.

The logical way would be to inform PAM that this account may be used to
log in without password, but leave the user password otherwise intact so
sudo can still make use of it so the user still has access to elevated
rights when needed.

My two cents for this old bug, because I think it still affects the
current distribution too, though I can't test it at the moment.

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https://bugs.launchpad.net/bugs/1070449

Title:
  "Login without password" option effectively locks super user out!

Status in “gnome-control-center” package in Ubuntu:
  Confirmed

Bug description:
  I installed Ubuntu 12.10 with the option to log my main user with a password.
  Then I added two other users and changed all three accounts to log in without 
a password.

  This nulled my main user's password and stopped the ability to sudo and make 
any system wide changes!
  Also the password can not be set back on, as there is no valid password to 
authorize any actions! In effect, you are completely left without a super user 
for your computer and cannot install updates or programs or do a whole lot of 
anything.

  There is a remedy to this and it is to go to the terminal and typing
  passwd, after which you can re-set your password. However this is not
  clear to many users, and that's why the Users panel simply should not
  be able to null your password even if you prefer to login without one.

  Very critical to get fixed asap!

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