Just finished replacing a single course of rotted lap siding along the top of a window.  Besides the fact that the siding was one of the fine products from Masonite that is covered under a class action lawsuit settlement, the siding had been installed resting on the flashing above the window, and was caulked.  Water found its way in, was trapped, and eventually rotted the lower edge of the siding, and rusted the flashing to boot.  I backprimed the replacement piece, hung it 1/8″ above the flashing, and have left it un-caulked based on the thought that caulk will only serve to trap the eventual water infiltration. 

What do you guys think?  Should you caulk where siding meets flashing or leave it open so it can dry?  Or perhaps the rot wasn’t a factor of the caulk but the fact that the siding wasn’t hung above the flashing…