Ok, so update. I spent ~ 1 hour on the phone with apple support this morning and they had me try to check the HD SMART status from the boot disk and the same issue popped up, but when i try to verify the disk, it verifies with no issues. They set up an appointment at the Apple store closest to me for tomorrow at 10am for me to take my iMac in.
I was very clear that i did not want to pay for this issue as it was never triggered before lion install and my system operates perfectly. They said they would make note of it. From what i was told, SMART status is HW controlled and not SW controlled.
Will advise more after tomorrow's appointment. Would recommend your issues be escalated as well. There has to be many many more of us with this issue if this thread is already so long and lion only launched 2 days ago. If you dont speak up, they will NOT fix it and say that your machine is the one that is defective...
Let your voice be heard...