I had the same problem with RH 8.0 with Garnome 0.23.1. I got rid of the problem by adding a file in /etc/X11/gdm/Sessions, just like you did. But instead of making the file point to .xsession I pointed it to a garnome-session -file in my homedir, which just starts the garnome. The file is described in http://www.gnome.org/~jdub/garnome/.
Everything worked, until I tried to use garnome with a different user than root (where garnome is installed). The result was the same error you described.. I think it could be because other users have no permits to access /root/.. (not sure, I'm a newb