You issued the useradd command without the -d option to create the home directory. Read the man page for useradd, it tells you all you need to know in order to create a user the 'correct' way.
Since there is no home directory the system has no place to save/keep xconfig files, hence no GUI.
You set the password for a user with
Setting root password is not advised by the Ubuntu community but if you know what you're doing.... (tip: www.google.com