Things have changed with the release of the 3.0 firmware which now allows you to hide the preview of any incoming SMS. To activate this feature, simply go to Settings > Messages > and turn “Show Preview” off. As you can see on the image below, Apple also added a feature that will alert you two more times after receiving a SMS if you don’t read it right away. This is a feature that has also been available for a long time to jailbreakers.

Hiding the preview of an SMS won’t completely hide it from showing up on your springboard. You will still get a popup showing the name of the sender and “text message”, with the option for you to view the SMS or just close the popup.

That was a much needed option but I think it’s too bad you still see the name of the sender (or his phone number if not in your contacts). It’s a matter of privacy. A name showing up on your iPhone can still lead to awkward moments.