Mickey330: I checked and the button is in the on position. I turned it off and on again, shut IOS down, rebooted and tested again. NO change.
If I leave the cover open and turn the iPad 3 off, all works fine. If I close the cover (I can see that the screen is OFF), the lock screen is bypassed. I don't use a password by the way.
I think I'm confused about your actual issue... Or we are talking sideways at each other. Sorry.
By design, you should not see the lockscreen if you have the cover set to start the iPad from sleep. When you open the cover, you should always go to the last view you had before you closed the cover (and put the iPad to sleep).
The only time you should see the lockscreen when you are using the cover is if you have a password set. In that case, when you open the cover, the iPad will show you the lockscreen and the number pad for you to input your pass code. Once you've typed in the pass code, you will then go to the last view you had before you closed the cover and out the iPad to sleep.
Well, mostly. I believe you can put a delay on the pass code so you don't have to enter the code if you use the cover to start up the iPad within a certain time frame. But, you don't use the pass code.
So, when you open the cover, the iPad should wake and show the last thing you were looking at, regardless if you used the cover to put it to sleep or it went to sleep on its own with the cover open (and you then closed the cover).
When the option is turned on in Settings, opening the cover will
always wake the iPad from sleep, no matter
how the iPad was put to sleep.
That help?
Marilyn