manually sorting a datagrid containing an asp:ButtonColumn?

Like TheLearnedOne says, you could use a DataView if you have access to a DataTable in your BindData method...  How are you originally binding to the data (e.g SqlDataReader, DataTable, etc)??

If you just want an improved version of your original code, you might want to try copying the entire control collection, instead of just the text.. something like (in c#):
      // Get a reference to the datagriditems out here since they don't change
      DataGridItem dgi1 = dg.Items[1];
      DataGridItem dgi2 = dg.Items[2];
      for (int i=0; i<dg.Columns.Count; i++)
      {
            // Initialize arrays to hold the original controls
            TableCell dgc1 = dgi1.Cells[i];
            TableCell dgc2 = dgi2.Cells[i];
            System.Web.UI.Control[] c1 = new System.Web.UI.Control[dgc1.Controls.Count];
            System.Web.UI.Control[] c2 = new System.Web.UI.Control[dgc2.Controls.Count];

            // Copy all of the controls from the cells
            dgc1.Controls.CopyTo(c1, 0);
            dgc2.Controls.CopyTo(c2, 0);

            // Clear out the old controls in each cell
            dgc1.Controls.Clear();
            dgc2.Controls.Clear();

            // Copy back the controls from cell 2 into cell 1
            for (int j=0; j<c1.Length; j++) {
                  dgc1.Controls.Add(c2[j]);
            }

            // Copy back the controls from cell 1 into cell 2
            for (int j=0; j<c1.Length; j++) {
                  dgc2.Controls.Add(c1[j]);
            }
      }