If RealPlayer is isntalled on the user machine, every time the video is played, the button will show up sugegsting the user to download video to a local drive.
How can we supress this button so that when the video is played on our web page, the user won't see it?
As far as I know, you can't. That was a dark, dirty path that Real decided to go down a couple years ago. It essentially gives users a direct tool to copy potentially copyright content. Granted, tools to do exactly this with Real content has existed for many years, but now it's dirt-simple.
You may want to consider switching your media to be Flash-based. The Flash Media Server (from Adobe) can encrypt and obfuscate the data stream, making it more difficult to get a clean copy of the video.