auto brightness works on the value you set it. for example if you use it at night in a completely dark place and set your brightness to a desired level, the phone will then take it as the minimum level and set your brightness accordingly to the light.
ok now change it manually and auto brightness option should be turned on while you manually set. from the next time it'll set automatically to tht level you set whn you are in similar light condition ..
Have already done that. Once you set brightness according to your preference(In auto brightness), you need to turn the auto brightness on and off for the auto brightness to work. I guess it's a software issue.