On the Nexus S, after inserting a number the keyboard goes to upper case and stays in upper case even though what you type appears in lower.
Michael Haskin commented
Similar issue here, composing an email the keyboard shows only upper case, though the case changes as it should. Other typing, or replying, or entering in the recipient's name it works correctly, or sometimes editing.
I just noticed minimizing the keyboard then restoring it fixes the issue, but I shouldn't need to do that every time I compose an email.