I believe my battery is fine. Unfortunately, I don't have another to test it out. Curious, what OS are you running? Stock Honeycomb or ICS?
I'm using the 00731 CM9 ICS port found in the dev section. The button works fine in Lecture Notes, so not sure what could be the issue. I tried changing the 'override pen' function, but no different combinations worked.
Nexus 4 | Stock 4.4 Rooted
Nvidia EVGA Tegra Note 7 | Stock 4.2.2
ThinkPad Tablet | 183822U | CM10 kang
Nexus S | i9020t | Sold.
Nexus One | Amon_RA 2.2.1 | CM 7.2
HP TouchPad | Gone.