After installing VLC through VNC and rebooting a couple of times, Xbmc is working again!!
I have no idea if VLC had any impact on XBMC working again, maybe some video lib?
By the way, VLC is not showing any movie.
Anyway, back to normal again.
Just one more question: so it seems not a good idea to update the Lubuntu system through the software updater? That sort of screws up the M2P image?