This will silence the terminal bell in iTerm, and won't replace it with a visual bell. It will still be silenced when connected to remote machines.
- Quit iTerm
- Change the bell setting in Property List Editor
- Open ~/Library/Preferences/net.sourceforge.iTerm.plist in Apple's Property List Editor  by navigating to it and double-clicking it in Finder
- Expand Root
- Expand Terminals
- Expand Default
- Click "No" to the right of "Silence Terminal Bell" and change it to "Yes".
- File > Save (Command-S)
- Property List Editor > Quit Property List Editor (Command-Q)
- Open iTerm. The bell should be silenced!
- you need to have XCode installed to get the Property List Editor
- in version 0.9.6.20090209 the value "Silence Terminal Bell" is gone from the conf file. You need to manually add it as boolean and set it to "true"