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I think there are more than one issue here. When I shutdown it goes in to some state where not all components are shutdown. This is a desktop setup. At least one fan is rotating in some component after the windows is shutdown and it does not respond to power button. It responds to the reset key. The keyboard or mouse actions are not recognized. Here is probably the problem. Windows 7 does not recognize my wireless keyboard in the sleep or whatever mode that is. 

I tried hibernate today and it works fine. It is just very slow. I can get the computer going from cold boot faster than hibernate.  May be that is why they came up with hybrid state. Or not. Whatever. The cold boot is fast and good enough for me on the desktop. Other modes will be very usefull on laptops and other devices with battery and all integrated setup. 

Now about my keyboard. It is an IBM keyboard. It is wireless, RF, and old style layout. 89P8730. I don’t use the mouse that came with it. I use Microsoft wireless laser mouse 6000. Windows 7 recognizes the mouse when coming back to life from hibernate but not the keyboard. May be it is not powering the USB dongle that talks to the keyboard. It works on 2.4 GHz frequency I think. 

So as a workaround, I select restart and then when it comes to BIOS post, I press the power button to shutdown the computer. That works. I also used MSCONFIG to make Vista as the default selection in the boot menu for the sake of other users.