View Song Lyrics in iTunes
With reference to the current version (iTunes 10):

Without adding third party software, you will need to actively select the currently playing song to view its lyrics.


⌘+I opens the Info window for the selected song
esc closes the Info window


If you open the Lyrics tab in the Info window, it will open in the same tab the next time you open it.

Visualizers

If you want to view the lyrics without interacting with your Mac, you might want to consider adding a third party visualizer. One such visualizer is Cover Version (freeware). 

(NOTE: With OS 10.7.4 &amp; iTunes 10.6.3, CoverVersion shows my lyrics with a upper case letter height of three pixels.  I opened the info window and changed the font from 12 pt. to 144 pt., but it didn't change the Viz.  But it's open source, so I could fix it if I were sufficiently ambitious.)

After you have installed the visualizer, you will need to select it in iTunes. For example:

View &gt; Visualizer &gt; Cover Version


Use ⌘+T to toggle the visualizer on/off
You can choose the menu item View &gt; Visualizer &gt; Options... to configure some visualizers  (For example, in Cover Version you can switch off the background graphics to make the lyrics easier to read)


Other Third Party Software

If you want to display lyrics while using your Mac for other tasks, you'll need to use a third party application.

Examples include:


Get Lyrical from Shullian Productions (Donation Ware)
LessLyrics from Ixhan (Freeware)