On versions 6.06 and 6.10 you have to edit a file. You should follow ubuntu-tutorials.com...
For Ubuntu 7.04 - the Feisty Fawn I found the solution in a few seconds. All you have to do is find the power management preferences. There is a link on the screensaver preferences at the bottom. On the tab 'On AC power' there is an option for 'when lid is closed:'. Simply select 'do nothing'. Do the same on ' On Battery power' if you want to.
Dam that was so hard right!.. so heres a screen shot.

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