Yes & no.. From what I have read, the socket format is MXM. So yes, they are detachable. But Apple being Apple, their version of it doesn't conform to the more usual MXM standards. So you cant use just any MXM card. However, perhaps the Nvidia 8800GS would go. That would seem logical.
But then again, look at the innards of an iMac, particularly the gfx card area, and you'll see what a sod of a job it would be to change it. To me it looks like it would need a pretty thorough strip down.
In theory, its doable. But I can see why no one has been brave enough to try it yet.
I actually find the ATI 2600XT in my iMac performs quite decently. But ATi doesn't produce the most dependable gfx cards, as many late iMac owners will testify. So if for no other reason, i'd prefer an Nvidia too, given the choice!
Just out of curiosity, why did you choose a faster processor over the better video card? I have 2.8ghz machine but I chose the Nvidia over the processor.