Thanks for the reply Mistah.
Yes, that is the solution currently open in front of me. Planning to buy another S2.
Why I (illogically) thought this being a software damage is that, there are intances where a hardware physical failure can cause some changes in software too. It could be like the freezing (makeing it read only instead of RW) of a linux file system when there is a failure to write on it, from the disk controller's end or on occurance of a bad-sector on the disk. This action is being carried out by the software. The OS just remounts the filesystem in readonly mode.
I am not into the internals of Android yet. I am completely ignorant on how the Android OS handshakes with the hardware. Also, the 100% working power button when the phone is switched off, won't work for 100% sure when it is turned on - this also made me to think this way. When the software is awake, something is preventing the key action being recognized. It may not be at the ROM level, as it is not working even in recovery mode.