The auto login doesn't indeed work if you've encrypted your home folder. An alternative is to use an encrypted private folder instead of encrypted home folder if you want to use auto login.
You can setup the encrypted private folder by running
ecryptfs-setup-private from the terminal but you'll first need to disable the encryption of your home folder by following these steps:
Backup your files from your home folder (don't ignore, you need to restore the back upped files later)
Log in using an admin account (create a new one if your account is the only one in your system) and
a) delete ecryptfs-utils package using synaptic or apt
c) delete completely your old home folder including your folder inside the hidden ecryptfs folder in /home
d) create yourself a new account
- Restore your back upped files (I warned you if you didn't backup your files)
DISCLAIMER: I wrote that mini tutorial as a response to a question in LP. Furthermore, it was written for Karmic but should work in later Ubuntu releases. It is provided as-is. I take no responsibility for any data loss.