I could not remember if I had updated the firmware on it since I bought it last year but I suspected my Asus P5E-VM DO had something to do with this. Unfortunately, I failed to find anything on Asus forums.
Today, I was trying to locate what key was causing PowerDVD registration reminder to pop-up via Sysinternal Procmon and noticed that my Philips camcorder was constantly querying registry. I decided to disable it.
So, I ran Start > msconfig and while there started to clean up other unnecessary stuff like pesky Adobe Acrobat's acrobat_sl.exe.
That's when I looked closer at two Logitech start-up processes:
I knew that they belong to my Logitech G7 software; the only reason I had installed them was to dynamically increase/decrease sensitivity while playing World of Warcraft. As I quit playing it; there was no reason to keep the software. I checked the forums anyway and found out that someone else was complaining about Vista not going to sleep mode with these running.
I disabled them and rebooted. It worked. Vista sleeps happily now :)
Well, it was not happily ever after :(
I did solve the problem for good though:
Apparently there are two Sleep levels in BIOS; S1 and S3 ( dont know what happened to S2). So, I had to go into BIOS and change sleep level to let it go to 'deep sleep'.