Yes having the same issue with block I/O ISCSI Luns. Have to Fdisk the partition in ESX Console before i can use it. I understand that this may get fixed in a future release. So until then looks like we need to Fdisk it..
We know this issue and will correct it before getting the certification process completed for iSCSI with VMware. From other customers they tell me to make sure to set the LUN to 1 or 2... but not "0". Also we will initialize this or have an option to do this within the GUI on next release.
The problem was that i created the LUN with a blocksize of 4096 bytes. It seems that VMware ESX 3.5 can only handle a LUN with a 512 bytes blocksize...