I cut and pasted this from my response to a similar question awhile back:
Sometime around eighteen months, he began to drift off less. I noticed he was in a lighter state of dozing when I put him down. This happened gradually and not at a steady rate. Some weeks it occured more often, some less.
At some point, he began to unlatch and sit up during our bedtime nursing session. I was confused and would encourage him to finish, not wanting him to wake hungry again in an hour. After a few days of this I thought, wait, he's telling me something - he's done and he's ready to lie down! Duh! From that point on I knew nursing to sleep was a phase he was going to grow out of at his own pace. He had shown me that he could let me know when he wanted to stop, and that he could now lie down without being totally asleep.
Before this point I wasn't sure he'd grow out of it without me encouraging it. It was not that big a deal to me, since nursing to sleep was such an effective tool, but seeing him begin to respond to his own needs and beginning to mature in his sleep patterns was a big milestone and taught me that it really was going to happen with or without me!
At about the age of two, I could stop the nursing session myself without protest from him, and lie him down drowsy but awake. He would then drift off after cuddling close to his lovey and blankey.
Now that he is two and a half, I can put him down basically awake, but relaxed, after a few minutes of nursing. Occasionally he will let go and say, "I'm done" and I will lay him down. I anticipate the day that he lays in my arms and is content to merely cuddle, refusing my suggestion to nurse. I know it is going to happen sooner or later.
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thought it would be good to update since it's been a year since I wrote that!
Ds was a couple of months past three years old and still faithfully looking for a little nursing before bedtime.He was still sleeping in his crib next to my bed. During a spring cleaning session I decided to set up the toddler bed in his room. I thought it would be a good place to cuddle and read. He asked about it and I just said to him that one day he would sleep in it and it would be his very own cozy bed.
Within three days he insisted on sleeping in his bed. We never asked him to do it. When he wanted to we were really low key and just said "Oh, ok." A couple of times he awoke and spent the remainder of the night in his crib but by the second week he had decided to stay put all night. This was a shocking enough development, lol, but even more surprising was the effect this had on our nursing to sleep routine... he began to forget to ask to nurse at bedtime and would ask instead for cuddles.
when my LOs stopped nursing to sleep, it was SO easy! They always nursed BEFORE sleep, but then it got harder to get the to finally, finally drift off 
My almost-3-year old still nurses to sleep. She was starting to fall asleep on her own at night, and I also felt hugely victorious, like someone else posted. But then she got sick and we're back to nursing on demand throughout the day and to sleep for naps and bed.
