Can I prevent SMS from showing on the Lock Screen in iOS 4?

Go to Settings > Messages. There's an option "Show Preview" there. If you toggle this to off, it will stop showing SMS previews on the lock screen. This will also disable the alert popup when a new SMS arrives and the phone is not locked.

As of the latest OS (5.0 and 5.1), you use the following method:

To turn off Message preview:

1. Launch the Settings app.
2. Navigate to Notifications > Messages.
3. Scroll down to Show Preview and set it to Off.

Now, instead of showing the actual message on the lock screen and in notifications, it will only tell you that you received a message and by whom you received it.

Go into settings->notifications->messages and turn off the badges option.