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Using a brand-new install to a usb stick of 12.04 lts installed by Universal USB Installer 1.8.9.8. I log in as "ubuntu" with a blank password, the console appears for a second or two with text scrolling past and then it returns to the login page. I've used the same usb stick on several computers with the same results, so it doesn't appear to be a hardware/driver issue. I have not tried installing to the hard drive, because I wanted to try it out first.

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I'd recommend installing a copy of the live USB with persistence mode, as it's specifically engineered towards running of a USB stick. Obviously not knowing specifics about the problem I couldn't point you to a fix, but I use USB and persistence a lot for fixing dead windows machines and it seems to work fine :)

For details on how to set it up see here

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