Having run Old School Essentials for awhile, I gotta say that the Sleep spell is as broken as I remember from D&D. It can completely shut down a low level encounter. A 1st level Magic User will be useless for the rest of the day, but that encounter is solved. I just tell the players how much treasure their characters find and move on after that spell gets cast.
Am I going to house rule it? Absolutely not. Sometimes the players need a win button.