I just updated Minecraft to Beta 1.7.2, and now I don't get wool from hitting a sheep once anymore. Killing it only drops 1 block of wool. In Beta 1.6, it used to drop 1-3 when hitting it once. Do I have to kill the sheep now, or is there an intended way to collect wool?
Use Shears to get wool from sheep.
Already been answered; you need Shears to get wool from sheep; but I'd be remiss if I didn't mentioned that thanks to this little change; wool is now possible to farm in mob traps that previously gave only Pork, Leather and Feathers.
So there's that.
Edit: Following the restructuring of how livestocks work in Minecraft (1.8b+1.0) this is no longer a good idea; as killing sheep will now permanently disrupt your ability to get wool.