How about just "/var/xdm"?  Here's what I've been using:

   DisplayManager.authDir:		/var/xdm/authdir

Do your authfiles get put into /var/xdm/authdir/authdir/authfiles or
/var/xdm/authdir/authfiles (note 2 authdirs in first one)?  My reading
of the man page and my experience trying a few permutations would
suggest the former.  I think if this is the place for it that

   DisplayManager.authDir:		/var/xdm

(with files going into /var/xdm/authdir/authfiles) makes more sense.

Cheers,
Brook