Janis, I've had the same problem with my Dell Latitude XT with Windows 7 (I think I had the same issue with Vista on it, too). Upgrading the BIOS to the latest version didn't help, so here's what I've done to at least work around it.
Go to the Start menu & type power - select Power Options from the list that comes up
On whichever power plan is selected, click on the "Change plan settings" link.
There are 2 sets of settings, one for "On battery" and one for "Plugged in". Change the "Dim the display" setting to Never for Plugged in (or for both).
I think the the key to the issue is that Windows dims the display after so many minutes & I think that if the lid is closed & the display is off when that happens, it gets confused. You've probably noticed that when you press the blue "Fn" key along with one of the up or down arrow keys, you get an on-screen display that shows the brightness level of the screen & you should be able to adjust it. When this issue occurs, that on-screen indicator will change, but the screen brightness won't change.
Since I've made this change, I haven't had to deal with a dim screen after coming back to the computer. If I press the blue Fn key with an up or down arrow key, I still end up not being able to adjust the brightness, but at least it didn't change down to a dimmed screen that I can't see.
BTW, I've found that hibernating the machine & then bringing it back out of hibernation will restore full functionality. Just putting it to sleep doesn't work.