Will it fail?

Let's say in a 5mW green laser pen (the cheap dx pen style, but from amazon and is more sturdy) you hold the button... for a few minutes. I held it running 7-8 minutes non-stop, but it did not overheat at all or even show any signs of failing (besides the fact that the batteries were getting run down ).

Is there a chance that you damage the diode or burn out the crystals from excessive usage like that?

I think there is little to no chance that the laser will fail!
But it depends which laser you use...
...Ive heard of broken <10mW lasers a few times ago - if you would use a laser with one of this hosts (http://www.dealextreme.com/details.dx/sku.10092) you mustn´t worry about duty cycles etc.

Regards
game-genie

In general 5mW lasers should not have a duty cycle. Unless the thermal connection between the module and host is very bad the laser will also get warm before any damage occurs. However, I cannot guarantee anything with cheap pen style lasers as:
1) While many cheap pointers are underspec, 5mW units are in many cases very much overspec. I have heard of 46mW peaks from a 5mW DX greenie.
2) Since quality is not fantastic it is difficult to say whether the heat would transfer to the rest of the laser before damage occured.
3) I have never had any of my pen style lasers become warm even after several minutes of use even though they have all been adviced to be 1 minute on/1 minute off, which suggests that point 2) is the case.

However.. as I stated at first 5mW should be possible to use continuously. I have never had any of my 50mW units fail even after 15+ minutes of use several times a week for months. If your laser does get warm to the touch and in the worst case does fail, 5mW costs very little to replace anyway.. so I suggest you don't worry about it