Dont be fooled, buddy. You can get much better PC equivalents than what you get with that iMac; 512mb RAM!? At least I thought it was 2006 and not 2001 still. The X1600 card isn't that shnazzy.
Saw a $300 20" LCD on sale at NewEgg the other day, it hasn't been that much for 16x12 for a few years. For me at least, it's worth not having 40lbs and several square feet of desk space eaten.
Until Core 2 Duo and motherboard prices descend from the stratosphere, the smart money is on AMD. The even smarter money is waiting until Sept or October for the video card. ATI will be dropping mid-life cycle product refreshes this month or next, and it's almost a gaurentee that NVIDIA will slap them with the G80; codename for their next-generation DX10 based card. Wait a few weeks after release and pick up the mid-range version, you'll be set for a solid couple years at 16x12.
Regarding dropping resolutions on 16x12, even low-mid range cards these days can power 16x12 with a lot of eye candy off, sometimes even higher res than that.. a modern new card wont have to drop res for any game coming out in the next few years, therefore thankfully meaning people with LCDs wont have to leave native resolutions.
X2 3800+ is only $147 and 2.4 to 2.5ghz on air isn't uncommon. Some very, very lucky souls get 2.7-3.0ghz with water. 7900GT is a deal currently if you can't wait for G80. ATI's AMD chipsets I know are solid, I'm using an ASUS deluxe board now, nForce5 if its on the market couldn't be bad.
No matter what you do.. avoid P4's as if they were the plague and you'll end up okay. $1300 is enough for a monster rig if you do it right, even enough to play with watercooling ($100 DIY kits out there).
Oh, and no mention of a PSU anywhere?! tsk tsk. Use the one that comes with your case as a paperweight and go get yourself a manly PSU that'll feed smooth juice to your parts for years. Running a Seasonic S-12 600w myself, its silent, dual 120mm fans. PCPerspective.com for any PSU you consider purchasing; hands down the best PSU reviews there. Do yourself a favor and dont stray from the "80%" and above efficiency club; efficiency translates in to a lower light bill, cooler room, and less noise. Don't get one of those fancy ones where you can disconnect cords if you plan to cast three sails to the wind and OC like mad, but if you dont plan on maximum OC, then they're awesome for cable management!