Generally, people do not sneeze in their sleep. Which is kind of weird if you think about it. I mean, sneezing is a reflex - an involuntary action - right? Whatever the cause, a sneeze is not something you can just decide not to do. You might be able to postpone it a little, but sooner or later it's gonna come out. You would think that since there's nothing voluntary about sneezing that people would sneeze while asleep just as much as while awake. But they don't.
Why not? Well, it turns out that sneezing is a pretty complicated series of events. It involves the nose, peripheral nerves, the brain, lungs, through and diaphram. All that has to be coordinated just right to make a true sneeze. It's why you can't really fake a sneeze that well: too many things to get right at once. So, what's different while we are sleeping? Still have a nose and nerves and lungs and stuff. But.... the brain is in a different state. During sleep, parts of the brain are much less active. Plus, while we are asleep the body is kind of disconnected from the brain, so that we don't do something painful to ourselves during a dream. Some of those brain areas are needed to make a sneeze. When they are inactive, the sneeze reflex falls apart because the chain of events doesn't get past the brain.
Here's a link that has another description of the question.
http://amos.indiana.edu/library/scripts/sleepsneeze.html
