The "standard" sewing machine simply won't work for leather of the thickness used for knife sheaths. As Andrew mentioned, there are machines made specifically for the task, but expect to pay thousands for any one of them that is decent. Personally I've tried machines in the past for sewing sheaths, but they are just not for me..... one of the things I demand in my sheaths is that the stitching be below the surface of the leather.....this means grooving/gouging prior to sewing, and its terribly difficult for a machine to accurately follow a groove/gouge line. I've also found that in order to purchase a machine that will reliably sew the thickness of leather I use (min 8-9oz) its a couple thousand on the low end.
Personally, leather work has always been my least favorite part of knifemaking.... I've attempted to "farm out" my leatherwork a few times.....but the results were simply not satisfactory for me. Either the leather used was cheesy, lightweight stuff, or worse, the sheath simple did not "go with" the knife. So, I've resigned myself to just suck it up and do it myself.
Personally, I think that many knifemakers see sheaths as an "after thought", which I think is a major mistake. I can't count the number of times I've seen really nice knives for sale, laying beside a crummy sheath, and witnessed potential buyers walk away when they saw the sheath. Unless the knife is a collector piece, its going to spend more time in the sheath then anywhere else.....so it needs to meet or exceed the guality/workmanship of the knife it holds.