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Update: I got it working. I had to completely remove all traces of the app following exactly the steps here, re-downloaded and reinstalled the app, and bingo - it works! :D
 
I've been a long time user of InsomniaX, and I was delighted to find that it seemed to work on Lion. However I quickly discovered that while I could turn it on and prevent my Macbook from sleeping, I was unable to turn it off again except by restarting the machine.

I have this same problem (using InsomniaX 1.3.5 on Lion; I did not know about 2.0) and furthermore my machine now does not sleep after the idle time specified in energy saver preferences even when InsomniaX is not running. The problem might not be related to InsomniaX, but I am reluctant to upgrade to 2.0 until I understand how InsomniaX works. Does anyone know if it changes a system setting (and therefore has the potential to cause a system problem if that setting is not properly switched back) or does it prevent sleep by resetting the idle timer every few seconds (which I have been told is what Caffeine and Media players do, and seems to me to be a much safer approach)?

I know it would be best to ask this directly to the developer, but I can't find any contact details on his website so I am hoping some users know how it works.
 
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