Login loop after installing Ubuntu 16.04 server and adding Ubuntu desktop and MATE desktop

I have created a new Ubuntu 16.04 server installation today, added Ubuntu-desktop and mate-desktop, and now whenever I try to log in with the user I created during setup, the login screen comes back and no error message is displayed. I do Ctrl+Alt+F1, and there my login works fine.

I do ls and I have only Desktop directory.

So I saw some answers recommending deleting .Xauthority, which I did, but it did not help

I rebooted and tried MATE desktop. When I try to login, I get an error:

Could not update ICEAuthority file /home/myuser/iceauthority

and

Path for the directory containing caja settings need read and write permissions /home/myuser/.config/caja

I ran

chmod 777 .config

which enabled me to log in, but I can’t see any menu or link or icon except a link to my home directory, so the system is unusable.

So what is going wrong?

Here is the ouput for tail xsession: