Is hybridization used in ab initio valence bond calculation?
(i) do people still use hybridization to construct the wavefuntion?

Yes and no. No: Only atomic orbitals are included in the base set. Yes: if the wavefunction is optimized, linear combinations of atomic orbitals are allowed, and we all know that one S-orbital + some P-orbitals give hybridized orbitals.

For $\ce{H2O}$, the lowest 3 molecular orbitals are generally these (see below):

At first, this result seems unlike the SP$^3$ bonds between hydrogen and carbon. There is a trick, however. It is called "localization of the orbitals", meaning that we generate linear combinations of molecular orbitals to generate new ones. Below, I'll give you an example in which we linear combinations of molecular orbitals $\varphi_2$ and $\varphi_3$ generate orbitals that look more like the SP$^3$ orbitals from text books.



(ii) if the answer to question (i) is yes, does the result differ from the textbook description? For instance, the lone pair electron in the $\ce{H2O}$ molecule? (is there any unitary equivalent result like orbital localization in MO-based method?)

As you may have noticed above, the results differ slightly, but I can elaborate.

Lone pairs are given by $\varphi_4$ and $\varphi_5$ below. 


For $\varphi_4$, note that p$_z$ is along the z-axis, which is in the plane of the oxygen and hydrogen atoms: it is the 2-fold rotation axis. 

For $\varphi_5$, note that p$_y$ is along the y-axis, which is perpendicular to the plane of the oxygen and hydrogen atoms: it is out of the plane. 

For $\varphi_6$ and $\varphi_7$, note that they are unoccupied orbitals (i.e. lumo and lumo+1)

Now, orbital localization can be applied, linear combinations of $\varphi_4$ and $\varphi_5$ will give 2 lone pair orbitals, that stick slightly out of plane. I haven't tried drawing those yet, as it is not so easy to do so in this representation in 2D, so I'l try to switch to another representation...



As you see, those localized molecular orbitals closely resemble the SP$^3$ lone pair orbitals on oxygen, as predicted by valence bond theory. The only difference is the shape &amp; probability of the small counter-part of the lobe; I included phase, not probability density here. 

Does this answer your question?