I'm messing with my default profile in iTerm2 to see the difference between normal, fullscreen and top of screen windows. However, the window doesn't seem to change out of "normal" mode, even if the pulldown says "fullscreen" or "top of screen". I've tried restarting iTerm2, but I'm always stuck in normal mode. I do have "Use Lion-style Fullscreen Windows" checked, but that doesn't seem to have any effect. I am using OSX Lion, iTerm2 Build 126.96.36.19920203.
Make sure the profile you're editing is actually your default, indicated by the star in the list on the left. "Default" is just the name assigned to it. Set the profile as default by clicking Other Actions, then Set as Default.