PAM is not enforced as a needed distro feature for core-image-lsb. As such, if the distro is not set properly (for example, as poky-lsb), building core-image-lsb will issue only a warning: "WARNING: Building libpam but 'pam' isn't in DISTRO_FEATURES, PAM won't work correctly" instead of an error.
Patch sent in for review.
Fixed with commit http://git.yoctoproject.org/cgit/cgit.cgi/poky/commit/?id=f4dc1e568636f7bfe216f4fb1386bbed4ee305af