I did a fresh install of Karmic on my Dell Latitude and this problem
came up. I had a similar problem with my HP netbook. I had previously
done an "upgrade" install of Karmic and the "Do Nothing" option wasn't
removed from Power Management. It took me awhile to figure out why my
external monitor wasn't working right. The command Lars gave fixed it:

gconftool-2 --type string --set /apps/gnome-power-manager/buttons/lid_ac
"nothing"

No restart was necessary, and "Do Nothing" is now an option in Power
Management. I can close the laptop lid and the external monitor stays
on.

-- 
[Regression] No "do nothing" for laptop lid closed action
https://bugs.launchpad.net/bugs/416236
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