If there happen to exist a file /xorg.conf, then that file will be used instead
of /etc/X11/xorg.conf when X is loaded with gdm during init. 

I have this bug in Gentoo with gdm started by the Gentoo init scripts. Still, I
believe xorg should never use the file /xorg.conf

Steps to Reproduce:
1. Make sure you use x.org and gdm
2. echo FOOBAR>/xorg.conf
3. reboot

Actual Results:  
X won't start, complaining about error in xorg.conf

Expected Results:  
Used /etc/X11/xorg.conf, and started properly.

/var/log/Xorg.0.log will say 'Using config file: "//xorg.conf"'

running '/etc/init.d/xdm start' will fail the same way.
running /usr/bin/gdm does does NOT fail.

I also tried creating a trivial /etc/init.d/gdm that did nothing but 
run /usr/bin/gdm. Then running '/etc/init.d/gdm start' worked fine, but adding 
gdm to init (rc-update add gdm default) would still fail just like xdm.

I do not know if this problem also exists with kdm and xdm.

This bug is also reported in Gentoo Bugzilla at
http://bugs.gentoo.org/show_bug.cgi?id=55540