Update:  I did a fresh install of Xubuntu 7.10 from live cd and had the
same problem, with the same solution.

Speaking of solutions.  Here is a detailed set of instructions.

Edit /etc/init.d/gdm using your favorite text editor (backup first!).

Now between the lines:

stop)
      log_begin_msg "Stopping GNOME Display Manager..."

add the following:

stop)
      usplash_down
      log_begin_msg "Stopping GNOME Display Manager..."

Then save.  Now the splash screen should start immediatelly after gnome
shuts down.

-- 
gdm doesn't call usplash_down
https://bugs.launchpad.net/bugs/159262
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