I could have sworn we saw Smith holding the sonic with the top part coming out the bottom of his hand using the red button to light it up in one of the more recent episodes.
I will have to re-watch, maybe I saw it wrong.
It does look like Matt uses the red button to light up the sonic sometimes, but that doesn't necessarily mean the button is functional.
Tennant used to do this all the time with his sonic. he would put his thumb on the cap and act like he was activating it from the bottom, but was actually lighting up the tip by pressing the side button with his pinky.
Dan