The reed switch itself is in the screen assembly. It's on the right hand side of the screen about half way up. However, it's activated by a small magnet located in the bottom case, above/beside the CD drive. You can see it in this picture:

http://www.ifixit.com/Guide/83/images_large/44.jpg

It's the small, rectangular, metallic looking thing between the battery bay and CD drive. In that photo it's ~45° to the side of the battery bay, but I believe it should be straight.

If you've taken the top case off, it's quite common for it to become dislodged, so I'd check that.