Linux - can't change lower_case_table_names variable

[Rich F]

OS: Ubuntu Linux 7.04
MySQLAdmin version: 8.41
MySQL server version:5.0.38

This works..............
mysql> desc agency;

This breaks............
mysql> desc AGENCY;
ERROR 1146 (42S02): Table 'amax_import_development.AGENCY' doesn't exist

So, Linux doesn't can't handle comparing table names with different fonts and I need to change the lower_case_table_names variable to 2. I added the following line to
/etc/mysql/my.conf
set-variable =lower_case_table_names=2

upon starting the server I get the following:
[Warning] lower_case_table_names was set to 2, even though your the file system '/var/lib/mysql/' is case sensitive. Now setting lower_case_table_names to 0 to avoid future problems.

I looked here : sudo mysqladmin -u root -p variables
and found this: | lower_case_table_names | 0

So, I looked here: mysql> SHOW VARIABLES;
And found this: | lower_case_table_names | 0

I've tried to set it via the mysqladmin command several different ways but I can't seem to get it right. Here's what I've tried and the results:

sudo mysqladmin -u root -p -O lower_case_table_names =2
...mysqladmin: unknown variable 'lower_case_table_names=2'

sudo mysqladmin -u root -p -O 'lower_case_table_names' =2
...mysqladmin: unknown variable 'lower_case_table_names=2'

sudo mysqladmin -u root -p -O lower_case_table_names =2
..mysqladmin: unknown variable 'lower_case_table_names'

sudo mysqladmin -u root -p -O 'lower_case_table_names' =2
..mysqladmin: unknown variable 'lower_case_table_names'

I've done the same using --set-variable=lower_case_table_names=2 and lower_case_table_names=2 but I can't get it to work. Any help would be greatly appreciated!

Thanks,

Rich