This is a difficult battle I am currently facing myself. I purchased a 23" Apple Cinema Display (great monitor) with a Mac Pro I used to own. I decided the Mac Pro was too much power for me and I sold it on eBay, it was a huge machine and basically too much for my needs and I could use the money back.
So, I currently have been using my MacBook Pro as my main computer and I don't like having to hook the monitor up every time I use the machine. I really want a static desktop Mac again with a desktop power hard drive.
My battle of the Mac mini vs iMac has been swirling in my mind. The Mac mini uses a smaller laptop sized hard drive. When you deck out the mac mini with 4GB of RAM you are getting up there in cost, the 20" iMac is just $1199, but it comes standard with 2GB RAM too. (I have an issue with having a minimum of 4GB of RAM). The 24" iMac comes with 4GB of RAM, and then you are looking at various video card options. I question why to get a 24" iMac when I have a 23" Cinema display sitting around collecting dust. I may be better served by a Mac mini allowing me to use my display and have a decently fast desktop mac which is fine for web use and iTunes. I don't really use my Mac for any heavy studio or production uses, although I like to playback fullscreen video and do some light audio work with Reason, and I like to run Photoshop occasionally. I think the Mac mini will serve my needs fine but I just need that 4GB of RAM. It's probably a psychological issue with me, 2GB could probably get me by fine. My main likes of the iMac are the all-in-one design, the fast desktop size 3.5" hard drive, and the ease of upgrading the RAM. I have heard horror stories of having to use a putty knife to upgrade the RAM on the Mac mini. The iMac RAM upgrade is easy and it is easily accessible under the screen. The speed boost with the iMac is another plus of the unit. Mac mini is capped at 2.0GHz and an expensive 2.26GHz. iMacs start at 2.66GHz which is plenty fast for everything. The Mac mini gives a bit of portability and the ability to hook to any DVI monitor. Additional 5 USB ports is nice. There are just many issues to look at in this battle and there is no right answer. I would not pick the Mac mini based on a budget concern. I would look at all the pros and cons of both machines (as I have). The Mac mini provides a portable unit. The iMac provides a fullblown desktop experience. You must realize the Mini can get expensive when opting for the fast processor and more RAM. The 20" is only a couple hundred dollars more. Many things to consider. It's a tough battle.