I had kernal panics (at least 5), slow processing speed, frozen apps, beach balls of death galore, and several other problems... So here is what I did (and it worked!)...
I backed up all essential files to an external harddrive (with the wonderful and easy to use CCC). Here is a suggested list (although everyone's needs and methods are different):
Desktop (and some recommend to not have actual files on your Desktop, but rather aliases), Photos folder, iPhoto folder, Movies folder, iTunes Music folder, Documents folder, the LIBRARY folder for the System, and the LIBRARY folder for the main User (you can reveal the User Library folder in Lion by going to the GO menu up top and holding "Option" on your keyboard), and finally my Mail folder (which is actually in the User Library anyways, but I did it twice just in case). You could also do your Applications folder as well (I just reinstalled all of my key apps though, cause I have all of my passcodes handy).
Then I booted up the computer holding down COMMAND + R and selected the new "Restore" volume that OS X Lion can mount.
I then used disk utility to completely wipe my hard drive clean.
After that I reinstalled Lion (there is actually an option to do so right in the Restore menu (the first menu back when you booted up with Command + R)).
If you have a boot disc it is better (you can search online on how to make one with the "Reveal Package Contents" method), becuase otherwise it will download another copy of Lion from the Internet, which might take a while. I used a bootable DVD that I made, and it only took me 30 minutes to install Lion from start to finish (with the newly cleaned drive).
Then, once up and running, I just restored all of my key files and folders to their respective places (not every single file and folder, as I didn't want to transfer anything that wasn't essential and MINE, i.e., not from the system) and then reinstalled all of my apps (yes, annoying, but I wanted to really start fresh).
Anyways... Lion is SCREAMING (or shall we say "Roaring"? 🙂) now, and it was sluggish and almost dead before I did this.
Hope that works for you (although it definitely will be a long process if you have to backup like 300+ GB of files and folders like I did).
Good luck everyone!