gnome-power-manager is set to ignore the sleep button by default.
You can check on this by running gconf-editor and looking at the "/apps
/gnome-power-manager/action_button_suspend" key. It will probably say
"nothing". Changing that to "suspend" should do what you want.
** Changed in: gnome-power-manager (Ubuntu)
Status: Unconfirmed => Rejected
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No sleep button in edgy?
https://launchpad.net/bugs/63303
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