This is because LXDM is bugged in 12.04 and 11.10. You can find more information on the bug and the status of the fix on Launchpad. You would have encountered this bug if you use XFCE or xubuntu-desktop as packaged by Ubuntu and you try to use LXDM to launch it. Or, more probably if you installed Lubuntu and then tried to migrated over to Xubuntu. Essentially, LXDM can't handle a space in the name and you'll have to edit a configuration file.