I have the exact same iMac as you with 6 GB RAM running Lion and it's awesome. Note that if you use any PPC apps (Microsoft Office 2004, Quicken 2007 to name a few) they will not work in Lion. If I were you, this is what I would do:
Make sure you have the latest
firmware for you iMac.
Back up all important files/ photos/ movies to an external usb drive. Make a written log of all the apps from the internet you want to reinstall.
Buy the
OS X Lion USB Thumb Drive from apple and 6 gb ram from
OWC (the best aftermarket mac supplier in my opinion).
Install the ram (not hard at all, OWC has videos).
NOTE: this next step will erase your entire hard drive!! Make sure you have backed up all your important files!! Erasing the hard drive is necessary to perform a clean install which is necessary to guarantee Lion will work properly.
Disconnect any external hard drives, thumb drives before proceeding so you don't accidentally erase them. Boot your mac from the OS X Lion USB Thumb Drive by holding down option during startup until the Lion USB icon shows and select the Lion USB. Launch Disk Utility (it will be one of the options) and use it to erase your hard drive (select the 250 GB drive to the left, not the Macintosh HD (or whatever you labeled your HD in Tiger) partition under it, click the tab "erase" next to first aid and then erase). Once that is done, close disk utility and follow the on screen instructions to install lion.
If all goes well, Congratulations! You have a modern computer again!! Good luck!