In Baldur's Gate 1, do you consider the Sleep spell to be balanced, or do you consider it overpowered for its level, or perhaps you think it isn't strong enough?

Consider the following factors:
1. Sleep is hard to resist: The enemies get a -3 penalty to their saving throws, which means the spell might not have allowed a saving throw due to how bad the saving throws of low level enemies are (in reasonable circumstances, anyway)
2. Once asleep, the target remains asleep. Attacking the sleeping target does not wake it up. Therefore, this spell can be effectively considered an instant death spell.
3. Hence, the spell is effectively instant death, no save allowed. Let's compare it to a spell from Baldur's Gate 2: Death Spell.
Sleep is available at level 1, and it kills targets up to level 4. In particular, those capable of casting this spell can still be killed by it. (That means that the enemies you should be fighting are vulnerable.
Death spell is not available until level 12, and it kills targets up to level 8. In particular, those capable of casting the spell are strong enough to survive it. (This also means that most of the enemies you should be fighting are immune.)

Edit: Are there any enemies in the game that cast Sleep that you are likely to encounter before level 5? If so, that would be evil.

Are you sure that enemies dont wake up when attacked? I found it rather useless in BG1 because though enemies like bears or wolves were almost never falling asleep and even if they do they were waking up after first hit making the spell pretty useless. However I used it often in both Icewind Dale games since enemies were coming in high quantity. Making them all fall asleep and then fighting them one by one was coming handy.

It's not overpowered, for the simple reason that it's easy to resist, except for very lowly creatures like gibberlings, but more than that it is completely ignored by undead, a majority of non-human enemies in BG1. It's not overpowered because once you face enemies of around level 4 or above it is almost useless -- it is an early level 'get out of jail' card. Other than that, it's useless. Oh, and no, enemies do not stay asleep, it has a duration of 60 seconds.

It is a very powerful in some situations, but utterly useless in many others (against undead, against targets of level 4 or more), so overall it's not completely unbalanced. Especially since low-level wizards tend to be weak overall.

In the GoldBox games monsters didn't even get a saving throw versus this spell.

I don't consider the sleep spell overpowered, considering how weak mages are it's rather balancing for a low level game like Baldur's Gate.

That's not a fact, that's a question. I'll answer you with another question: have you ever seen one of your party fall asleep?

I actually avoid Baldur's Gate 1 because it combines the problems of the Infinity Engine with the problems of low level AD&D.

When I did try playing it, I didn't see an enemy use Sleep, but I did see one use Improved Invisibility, which is not a fair spell to use against a first level party. (Improved Invisibilty, remember, is 4th level, so it shouldn't be used against a party that isn't at least approaching level 7.)

Why not? That's like saying it's not fair to use magical weapons. That's not what low level is about.

The main problem is that a level 1 party has no way to counter that particular spell. If an enemy uses it, the party does not have a chance.

I would say that Sleep has this problem, as does Death Spell (as mentioned in a topic about Baldur's Gate Trilogy): A low level party can't realistically counter that spell. (Here, of course, the definition of "low level" is any party that is still vulnerable to the spell in question.)

Out of curiosity, you said you saw an enemy use it against level one party. Who was this enemy? I've never seen that. Even the mages at the entrance to Cloakwood mines and even Davaeorn don't use it.

It was a character I encoutered in an early town, who I had to fight after making what I consider to be reasonable choices.

Ah, you're talking about Silke in Beregost. She's a bard, and likes spamming Lightning Bolt and Magic Missile, so she becomes partially visible and can be dealt with normally. She can also be interrupted (melee/acid arrows/arrows of biting) before getting off Improved Invisibility. She's a challenge, yes, but no more than any other boss type, and can be dealt with normally.

Does this happen a lot in your adventures both in front of and away from the computer?

The only time I've ever had the sleep spell used on my low level party was the fight with Phaen in Icewind Dale 2. While it can be tough, it isn't too hard to deal with.