I also had this issue when installing onto a 4GB Sandisk Cruzer Titanium
USB drive using the Pendrivelinux.com instructions.  I created my own
profile and booted a few times without issue.  After a day or so I got
this same problem and wasn't able to log in any more.  I was able to
boot to the terminal and chmod the permissions of the
home/<myprofile>/.ICEauthority file.  After this, everything works fine
(so far).

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can't logon using USB dongle with 7.10
https://bugs.launchpad.net/bugs/197454
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