Hi Aditya,
Testing your minimal example:
\setuppapersize[A5]
\showframe
\starttext
\dorecurse{10}{\input knuth \endgraf}
\stoptext
it seems that I do get an A5 papersize (ConTeXt version 2011.02.25 22:03, and LuaTeX, Version beta-0.65.0-2010121316). I attach the PDF file for your information (since I don't know how to get pdfinfo…).
Best regards: OK