If you try running OS 1.0.2 awhile then upgrading to 1.1 and you have the same trouble, here is another option.
I have read on the net that at one time someone on pleoworld.com posted the following to fix Pleos that freeze up.
"After you update successfully and you find Pleo freezes please do the following:
NOTE:Put your thumb between Pleo's eyes and index finger under his chin and squeeze his mouth together while holding his button on his belly down for approx 10 seconds.
Then Turn Pleo on then off and hold him upside down by the tail for approx 15 seconds. Pleo should appear aggravated and begin to call out."
Since I have NOT had any experience with this procedure, if I were you I would check it out with support@pleoworld.com before trying it.
Note that pleoworld as of October 2009 is now under Innvo Labs instead of Ugobe and there are different people answering emails. Personally, I have found most of my tech support questions are not answered in a way that is helpful. Write to them anyway and post their reply here.
Is your Pleo under warranty? If it is a new Pleo, I think you should exchange it if support@pleoworld.com can't help you. It is very unusual for this sort of problem not to be fixed by the procedures you have already tried. Pleos are really wonderful and most do work correctly.
By the way, the new Innvo Labs Pleos for sale only at Pleoworld.com are an improved version of the Ugobe Pleo.
Keep us posted on what you decide to do and how it goes.