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My laptop has the same issue as most laptops do have , it does not hold on to its charge for the expected amount of time . Now I have seen blog post that suggest to 'completely' drain battery power out . Now it is one of possible solution for shortened battery power , and many a times I have used my laptop till it hibernated automatically . The situation did not improve and I am not willing to buy a new battery . Now , my question is , there is an option in Windows power option how much battery power to reserve , usually it is set to 5% after which the laptop is set in to hibernate . Is it a good idea to change that number to as low as 0% to see if the condition improve ?

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It's not a good idea to drain any sort of battery to 0%. You're more apt to kill it than cure it. The way to preserve laptop battery capacity is to not charge it over 60-80%. Some laptops have controls to allow you to set this, others do it automatically. –  Daniel R Hicks Jul 20 '12 at 3:00
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First it should be stated that the expected battery life is set rather optimistically with a fresh, new battery. Every battery starts to degrade immediately and there are several factors which cause it to degrade faster and hold progressively less charge.

Heat will cause the chemistry to break down resulting in less capacity. You're basically cooking the chemicals in the battery causing them to break down.

Overcharging and overdischarging will both cause breakdown. If you overcharge, it causes heat and it tries to push the chemical cycle to reverse, but there is a limit. Keep charging and you won't push the battery to have a higher capacity. That's why there's a debate whether keeping the battery in while on AC is good or not. Most laptops will have some circuitry to prevent overcharging, but who's to say that your laptop manufacturer didn't cheap out and not install a really high quality controller?

If you over-discharge, you push the chemical cycle from charged to discharged and it may go to a point where the chemicals can't go back. Push too far and you may push the chemistry over the edge so doing a 100% discharge is not recommended as a standard practice.

The other issue is simply time - the chemicals degrade as time goes on just like food eventually goes bad.

That said, what are you doing when you do this full charge/discharge until the laptop shuts off? Basically you are retraining the laptop to recognize how much less capacity the battery has so the meter is more accurate, you aren't really helping the situation - you're hurting the battery. The laptop starts a timer saying - the battery is full. Then it waits until the battery signals that it is about to quit. The laptop then calculates a new Full to Empty equation to use from that point onward.

The old NiCad battery packs had a memory problem which the full discharge cycle was supposed to fix. Remember - you are not using NiCad any longer - you are using Lithium which prefers small, short discharges, and not really deep long ones. Some lithium packs are limited - they can only take something like a 1000 cycles - then they die.

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nice answer ; I always looked for answers like this ; instead of trying to be superstitious about battery firmware . –  motiur Jul 20 '12 at 4:14
+1 for mentioning NiCad. NiCad is indeed old tech, but stories which where once true linger, even when we moved onto new tech. –  Hennes Jul 20 '12 at 12:31
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