One of the components of your Home folder is your Library folder. The Library folder is where your preferences, settings for your applications and other system files are stored. Usually, it is a folder that you don’t touch all that much because your personal files are not located there. Which is why Lion made it disappear from Finder.
No, it’s not permanently gone or replaced with something else. It’s still there. Lion simply made it invisible since you don’t use it anyway. One less thing to bother with, so to speak.
If you are a power user and would prefer to see the library folder and manually control it, there is a way to make it appear once more. Just open a Finder window and click Go in the menu. While the menu is actively open, press the Option key. And voila! The Library folder will now magically reappear as part of the Home folder. You can now modify your Library folder.
Take note though that if you don’t really know what you are doing, it might be best not to touch the Library folder. Tweaking the different files might affect some of your applications.