After updating to latest version, starting iTerm does NOT open a shell automatically. I have to open one from the menu.
In preferences, the option "Open default window arrangement" (which I suspect might control this behavior) is unchecked and is grayed out so I can't change it.
Running latest Lion and iTerm 1.0.0.20120123
If you save the window arrangement, that check box becomes usable and window(s) will then open when you start iTerm.
In my opinion, a new shell window should open by default, as it was before the update. Using packetmangler's workaround, I was able to achieve my desired goal, but it was not ideal. Please switch it back to how it was. (New window on startup by default)