It prevents guests from seeing all but the first post of threads on both my vB 4.2.x dev sites. You didn't happen to check the checkbox associated with "Unregistered / Not Logged In" did you? Those checkboxes are to exclude usergroups from the actions of the product, which would allow them to see all posts.
If not, I would be happy to come to your site and take a look later tonight when I am in for the evening.
If you are okay with that, send me a PM with your site URL, and the login credentials for an admin account.