"Li + n 4He + T"
"The lithium absorbs the neutron and generates a tritium while releasing a bit more energy in the process. There is plenty of lithium available in nature.
However, the neutron problem is not totally eliminated through the above solution. Not all neutrons will fuse with the lithium, and instead fuse with other parts of the reactor, possibly inducing radioactivity. Neutron multipliers may be used in a reactor to compensate for this neutron loss, or reactions that yield more neutrons might be implimented, such as 7Li + n 4He + T + n. As for limiting the amount of high-level nuclear waste, careful selection of the materials used are expected to minimize the handling and disposal of such radioactive material. For example, the development of advanced, low-activation materials (like vanadium-based materials), or through the use of neutron-free reactions, could be implimented in future reactors."
http://library.thinkquest.org/17940/texts/fusion_dt/fusion_dt.html
I also remember something about Helium cavitation: all those alpha particles whacking into the superstructure and turning into plain ordinary Helium - but inside the supporting walls.
Still - if fusion could be made to work economically these other issues could no doubt be resolved in time.
What Lithium? You can't have lithium in the plasma; it radiates away too much energy. I guess you could line the reactor with some sort of lithium compound, but elemental lithium is too volatile to line the reactor - it would contaminate the plasma, besides as you stated not all of the neutrons would get caught in a lithium lining - in fact it's really hard to block neutrons. If you go to deuterium/deuterium fusion this problem is eliminated, but the ignition temperature goes way up. The IEEE did a series of studies on this back in the '80s and concluded that this was one of the biggest problems with a potential D/T fusion reactor