There are two options in the preferences setting in the Contacts or Address Book tool; sort by first name, and sort by last name. That setting is in the preferences general setting, and this setup is typical of OS X 10.7.
If you have a help desk, do call them, particularly if there's something unusual about the set-up of the systems you're using. In some computing environments, the OS X settings are locked down by the IT folks, for instance.
I was struggling to fix this myself, after coming across this thread and seeing Mr. Hoffman's reply, I finally figured it out. I am a brand new MacBook user and still learning the GUI (used PC my whole life). I was trying to change this in System Preferences instead of the Contacts Preferences.
So Tara, seeing its been more than 6 months since your post you've probably already fixed your issue, but if not, and for anyone else that is new to mac like me and need just a little more detailed instructions:
Launch Contacts -> Click "Contacts" in top left corner -> Click "Preferences" -> Sort options located in the "General" tab of the contacts preferences window.
Thanks for getting me on the right track Mr. Hoffman!!