Okay, first of all, as previous replies mention, using manual mode does not effect sharpening one way or another. All it does is leave you in control of all the exposure settings (shutter speed, aperture size and ISO).
Also understand that your camera always takes RAWs.... all digital cameras do. You can choose to directly store that file to the memory card. When RAW files are stored, no processing is applied at that time, but record is made of the profile/style you have set. You can instead set the camera to save JPEGs, to process the images in-camera, in which case the profile/style will be applied and that includes the level of in-camera sharpening you have set (or was preset for you). Or you can set the camera to save both RAW + JPEG, where the profile will be recorded but not used in the RAW and applied to the JPEG.
Besides M or Manual mode, several auto exposure modes also allow you to shoot RAW files. Those are P/Program, Av/Aperture Priority and Tv/Shutter Priority. In P mode, you set the ISO and the camera chooses both the shutter speed and aperture size to give correct exposure. In Av mode, you set the ISO and also the size of the aperture, the camera chooses a shutter speed that gives correct exposure. In Tv, you set ISO and choose the shutter speed you want to use, and the camera adjusts the aperture as needed to automatically give correct exposure.
All these exposure modes allow you to shoot RAW files (or JPEGs or RAW+JPEG if you wish).
Now, if you use one of the scene modes (sports, landscape, portrait, etc.) the camera will automatically make JPEGs, won't allow you to save the images as RAW files. These are even more highly automated modes, where many of the image settings are chosen for you, including shutter speeds and apertures and limitations on available ISOs and the focus setup... plus the type of file that's being stored. They force you to save JPEGs and don't allow you to change the in-camera settings to dial down sharpness.
Okay, so you are using an exposure mode that allows you to save RAW files. Just keep in mind that the picture style settings you have selected will be recorded, just not automatically applied in most cases. The only time they will be automatically applied is if you use Canon's own Digital Photo Pro RAW file converter and leave it set to "Ad shot" mode, where it uses whatever was set in the camera. This should be identical to letting the camera process the RAW itself and save it as a JPEG. But, you have the option of overriding what it's doing.
However, using a third party softwares to do RAW conversions such as you are, those picture style settings recorded in the RAW file are not being applied automatically. Instead, the software uses its own settings. As mentioned above, Lightroom by default applies a little (+25). The same with CS5... if you open the CR2 RAW file directly in Adobe Camera Raw that Photoshop uses, it also defaults to +25 sharpness. You can dial it up or down, as needed.
Plus, when you Export or Print from Lightroom, you are again given the option of applying more sharpening, more specific to output but rather simplified: none, or "sharpen for screen" or "sharpen for matte or glossy print" and low, medium or high).
It takes some practice and is a bit up to personal taste how much sharpening to apply. I see a lot of images on the Internet that I consider way oversharpened... But the folks who made those might look at my images and think I need to do more sharpening.
Too much sharpening adds artifacts. It also will enhance noise within an image.
There are various sharpening techniques. Experiment with them to see what works for you. Unsharp mask and Smart sharpen are two in CS5. There is also high pass filter sharpening. Basically sharpening is enhancement of micro contrast, though that oversimplifies it. Sharpening can and often should be applied selectively. I often add blur to backgrounds and sharpness to only the subject and ground immediately around them. This often means doing gradations of sharpness/blur. Takes a bit of work in Photoshop, but can be the real finishing touch on images.
Usually a small amount of sharpening like this is needed initially. Later more may be needed when the image has be sized for some particularly use. The size and resolution of the image will dictate how much sharpening should or can be used. A JPEG made for an 11x14 print at 240 ppi will handle, might even need more sharpening than a 400x600 pixel image that's going to used on a web page. Save some sharpening for the final image, when you have decided it's purpose.