Ubuntu 11 and later use lightdm rather than gdm, and vglserver_config doesn't yet grok how to invoke vglgenkey when lightdm starts up.
Workaround is to switch to gdm:
apt-get install gdm
(this automatically runs 'dpkg-reconfigure gdm', but you can manually re-run it if the gdm package is already installed.)
Now vglserver_config should work properly.
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