10.7 (Lion) Password accepted but can't log in

Question

Late 2009 MacBook Air. The problem I describe happened shortly after upgrading from Snow Leopard to Lion with all the latest updates. It's been running smoothly untill this morning.
1. At "choose account" log-in screen, when I choose ANY of the regular user accounts, OS X accepts the password, then loads a gray screen, and a few seconds later goes back to the "choose account" log-in screen.
2. I am not entering the wrong password. OS X still gives the shaking password box when I enter the wrong password. That's not what's happening here.
3. I can log in to the guest account. It's the only was I can get past the log-in screen.
Any idea what's happening or know of a solution? I've tried:
1. Resetting PRAM.
2. Also tried login from Safe Mode.
3. And using disk utility (found no problems what so ever).
4. Resetting the password (http://news.softpedia.com/news/How-to-Reset-Mac-OS-X-Account-Passwords-214330.sh tml)
Still no luck.
My apologies if this has been answered before. I couldn't find any references to this precise log-in problem.
Thanks for any advice.

Answer 1

Update: I am back and running. How I made my corrupted account's files accessible to my new profile account can be found here: https://discussions.apple.com/message/20798613#20798613
Summary of my attempts and solution:
Actions that didn't fix login problem:
Reset PRAM several times
Safe Boot (power on + left shift key). Problem still exists.
Disk Utility (Verify and repaired permissions. Verified disk - no problems)
Checked disk “The volume Macintosh HD appears to be OK”.
Repaired disk. Problem still exists.
Recovery partition (Power + option)
Tried login while holding shift key down
Reloaded OS X
My Solution:
Create new account:
Shut down, and power on holding Apple and S (cmd -s).
Type the following lines followed by return, without the dollar sign:
$ mount -uw /
$ rm /var/db/.AppleSetupDone
$ exit
    2. Moved corrupted user’s data to new user account by FireWire Target Disk Mode