There is a fault in the settings for the Gnome display Manager. See the fix at
http://elinux.org/R-Pi_Troubleshooting# ... y_password
You will need to return to runlevel 2 to login and fix this problem, or you could login with ssh, or you could try this fix...
Connect the SD card to a PC (Windows/Linux/OSX) and create a file on the 70MB partition named boot.sh containing the following...
gconftool-2 --type bool --set /apps/gksu/sudo-mode true
If the file boot.sh already exists, just add the above line.
Insert the SD card in the RPi and boot up.