Hi Kenneth,
I just tried using the default SDK v7 binaries with StarterKit rev 1.1A and I can verify that it's working absolutely normal:
root@am335x-evm:~# echo mem > /sys/power/state
[ 60.227513] PM: Syncing filesystems ... done.
[ 65.978314] Freezing user space processes ... (elapsed 0.001 seconds) done.
[ 65.986886] Freezing remaining freezable tasks ... (elapsed 0.001 seconds) done.
[ 65.995947] Suspending console(s) (use no_console_suspend to debug)
After pressing a button in the terminal, the system wakes up.
Did you try using the pre-built images from inside <sdk_dir>/board-support/prebuilt-images/ ?
Best regards,
Miroslav