I reinstalled it again choosing the option to login automatically. After reboot, it did login automatically.
But upon logout, when i tried to login again, it doesnt. it did the same thing as before.
I tried another method, I installed Xubuntu 10.04, then installed Lubuntu 10.04 on top of it. Log in works fine. Then, i tried purging Xubuntu completely and reinstalled Lubuntu using apt-get install lubuntu-desktop. I tried the login screen again, still it doesn't login.
Probably lxdm is the problem? I installed gdm, and chose gdm as default, it works fine.
This would be my temporary "fix." I hope this would get fixed soon.
I love Lubuntu,. it only uses 150MB of RAM in my case ^^