After updating to 10.7.1 (the first Lion update) & restarting the system, it's not logging me in. As I give my password and press return it stays on the same login screen. I could move the mouse but there is no rotating wheel, just the same login screen. I tried starting Mac in safe mode but same thing.
It was because of Login Hook script which was stopping the login action. Booted in Single User mode and moved the script away from the expected location. Thanks to bmike for the tips.