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Agreed. That is certainly a meaning of let sleeping dogs lie.
Simply stated, it means allow inactive problems to remain so. This means, to me at least, that even though a problem may have happened, it can remain a problem of the past and there is no need to rehash it. Certainly, some problems may fall into the best forgotten category, as you said. Other troubling events, like the death of someone, can be remembered our whole lives through. However, even though we remember them, we can choose not to let them upset (ruin) the present.
This is what I had in mind when I added the old proverb to the list.
We generally say let sleeping dogs lie whenever we discover that someone can't leave a problem in the past (including the death of someone). But, like you, I agree that something less harsh sounding, like life goes on, is a better thing to say in this case.
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