Caps Lock not working on 10.6.7
Have you checked to make sure that your CAPS LOCK key is turned on in your Keyboard Preferences?

Go to System Preferences -> Keyboard -> Modifier Keys. Make sure next to Caps Lock, it says Caps Lock and not "No Action".

Also, do you have any 3rd party Keyboard Modification Preference Panes installed, like KeyRemap4MacBook or PCKeyboard Hack? Those can be used in various ways to disable or otherwise alter the CAPS LOCK behavior.