I managed to find out that it has to do with sessions. If I delete the contents 
of the $HOME/.cache/sessions directory or have never saved any session, the bug 
is reproduced. Here's a better steps-to-reproduce:
1) Delete all the files from $HOME/.cache/sessions.
2) Set the splash image to balou.
3) Log out but make sure xfce does not save your session
4) Re-log in, wait a few seconds and the system stops responding

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Xubuntu 8.10 balou splash image makes the system unresponsive 
https://bugs.launchpad.net/bugs/319676
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