So I went to the Apple Store and tested out their computers. Each one behaved the same way. It turns out that it's NOT a software issue. Apple has merely changed how they interpret the "automatically illuminate..." feature.
With Snow Leopard:
If Automatically illuminate is unchecked it means always keep the light off.
If Automatically illuminate is checked it means only illuminate in low light. Therefore if the ambient light is low, then the keyboard light will be on.
With Lion:
If Automatically illuminate is unchecked it means "Do not automatically illuminate in low light" Therefore it will always remain on even in bright ambient light. There is no logic as to why people would need the light on when the ambient light is high. But that's how Apple wanted it.
If Automatically illuminate is checked, just like Snow Leopard, it will only illuminate in low light. Therefore if the ambient is low, then the keyboard light will be on.
The issue:
For those of you who have Lion and have Automatically illuminate checked, by definition it will automatically turn off the keyboard light unless you are in a low ambient light environment. Therefore if you have Automatically illuminate checked and the keyboard light is always on, that means your ambient light is too low. Bring it outdoor/shine some light into the sensor, I guarantee you the keyboard light will now be off.
Solution
If you are constantly in a low ambient light environment and want the keyboard light off, the only to do it is to manually press the F5 key to reduce the keyboard light brightness to zero.