Because the name “Hezbollah” is an attempt to turn Arabic letters into English ones, there is no one right way to spell it.
Searching on the Web I found four main ways to spell it (the numbers are according to Google):
- “Hezbollah” (87.9%) – used by AP, American newspapers, the American State Department, CNN, BBC, VOA, The Times, the Times of India, US News & World Report, the New Yorker, AFP, Xinhua, Pravda, Sify, Al Jazeera, Yahoo!, the Wikipedia, the Oxford English Dictionary (OED) and the Britannica.
- “Hizbollah” (6.7%) – Reuters, United Nations, Daily Telegraph, Financial Times
- “Hizbullah” (3.7%) – Hizbullah (!!!), The Economist, the Guardian, Newsweek, the Daily Star of Lebanon
- “Hizballah” (1.8%) – CIA, Time magazine
I am used to seeing “Hezbollah” so it seems the least strange to me, “Hizballah” makes the most sense (since it preserves “Allah”), but in matters like these I follow The Economist. So “Hizbullah” it is. Only one web page in 15 uses “Hizbullah”, but, as it turns out, it is the spelling that Hizbullah itself uses!
June 4th 2007: Since I wrote this I bought an Oxford dictionary and have decided to follow it on all questions of spelling. So I now spell the word as “Hezbollah”.
See also:
Abagond 
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