I can't get archive to work on Lion. When I choose archive in Mail.app it creates a folder called Archived. That's not what I want. When I choose delete it doesn't remove the message from my inbox. It is just greyed out. Right now I leave the messages in the inbox and archive them from my iPhone, which works great. Please help me get this working.
If you're okay using Mail's delete function as archive, then simply go into Mail > Preferences > Accounts > Gmail > Mailbox Behaviors and deselect both of these options:
[ ] Move deleted messages to the Trash mailbox
[ ] Store deleted messages on the server
Then when you delete a message in Mail, you'll be archiving it.
I had the same problem, and it turned out that I had to enable Auto-expunge in gmail settings; otherwise actions performed in Mail don't sync up to the gmail server in a timely fashion. Just enable auto-expunge.