the problem is that your readdir loop is getting trashed by the re-entrant sub - each time you recurse, you lose the previous directory loop. Something like this works (tested too!)...

#!/usr/bin/perl -w

use strict;
lc_filenames(shift @ARGV);

sub lc_filenames{
    my($dir)=@_;
    $dir||="."; 
    opendir DIR, $dir;
    my @files = readdir DIR;
    closedir DIR;
    foreach my $file(@files) {
        next if ($file =~ /^\.+$/);
        lc_filenames("$dir/$file") if(-d ("$dir/$file"));
        rename("$dir/$file", "$dir/".lc($file)) if($file=~/[A-Z]/);
    }
}
[download]

Cheers, Ben