I think that the problem could be related to the EnableViewState property for your asp.net button; It has to be 'true' for the value to be passed into the postback handler.
I've done a little test on my side and I'm able to reproduce your problem if EnableViewState is 'false'; It works if I set it to 'true'.
I hope it helps,
Roger
Use A HiddenField
To Get The value after postback
Try This
<html xmlns="http://www.w3.org/1999/xhtml">
<head runat="server">
<title></title>
<script src="../js/jquery/jquery-1.4.1.min.js" type="text/javascript"></script>
<script>
function btnSetText_OnClientClick() {
$("#<%= lbl1.ClientID %>").text("123");
$('#HiddenFileldVariable').val($("#<%= lbl1.ClientID %>").text());
}
</script>
</head>
<body>
<form id="form1" runat="server">
<div>
<asp:Label ID="lbl1" runat="server"></asp:Label>
<asp:Button ID="btnSetText" runat="server" Text="Set Text" OnClientClick="btnSetText_OnClientClick(); return false;" />
<asp:Button ID="btnSubmit" runat="server" Text="Submit" OnClick="btnSubmit_Click" />
<asp:HiddenField ID="HiddenFileldVariable" runat="server" />
</div>
</form>
</body>
</html>
protected void Page_Load(object sender, EventArgs e)
{
}
protected void btnSubmit_Click(object sender, EventArgs e)
{
string str1 = HiddenFileldVariable.Value;
}