Question about applying new siding where a picture window is not level
The answer to this question really is a matter of opinion but there are some things that can be considered.


You could plan the siding installation so as to split the difference so that it is just half noticeable.
If the siding is relatively wide respect to the 1" difference in the window out of level amount you could plan the siding runs so that you keep there from being a narrow strip near the bottom of the window. Wider will be much less obvious. If you get lucky with this scheme you would end up also with a wider run above the window as well but if not then aim to optimize at the bottom as that would be more likely to be seen head on.
The most invasive would be to check if the window is also not even with the floor inside the house. If it is uneven inside similar to the outside you could then elect to remove and re-position the window make it more even.