The system boots and shows login screen as usual, but after I type the password and hit Enter it throws login screen again. it's a VM, so I don't even have GRUB to login without GUI.
Anything I can do to login?
You can use any *buntu live CD to reset the user's password if that's the issue. See this site: How to Reset Ubuntu Password Using LiveCD
In Lubuntu the default file manager is pcmanfm instead of nautilus, however the rest of the steps are the same. Mount your ISO disc image of *buntu to your virtual machine and you can reset the password, which should let you log in again. Afterwards, you may want to enable logging in automatically in the user preferences.
Despite being in a VM you should be able to get access to the shell, have you tried pressing Ctrl+Alt+F1 on the login screen?