The nose-mounted guns are mounted below the eye-level of the pilot. The line from the pilots eye, through the sight, to the target is the LoS. The bullets start out below the LoS (but not much), arch up through the LoS, and "fall back through it at 650 yards (with a 650yd convergence).
It won't be very noticeable though, because you're only looking at a starting point a foot or two below the pilot's LoS, and a "top" edge only a few feet above the LoS. The ballistics on the P38 is pretty dang "user friendly". Also keep the scale of the target in mind;
the center ring is 20ft in diameter. Some of those nice groups are actually spread out over an area the size of my garage. They're not nearly as concentrated as they appear (mainly due to dispersion).
The sight elevation on the target is base on speed, and how that speed effects the required AoA to maintain level flight at that speed. A slower speed will require a higher AoA, so will make the sight move up on the target (because the nose will be higher for level flight). A faster speed requires a lower AoA, so will result in the sight being lower on the target (because the nose will be lower for level flight). The target always stays at your level, the nose just doesn't always point to the same place...
It doesn't really matter though, the bullets aren't going to the center of the target, they're going where the sight is.
This link shows my screen shots form the P38, for comparison. I took pains to adjust my speed so the sight lined up with the center of the target, and stayed there. Not that they're "better", they may just offer a different perspective.
http://bbs.hitechcreations.com/smf/index.php/topic,291146.0.html