A note about the MP "upgrading" part. What are you going to upgrade in the MacPro? New processors are incompatible with old motherboards and you have to buy too of them if you want the to work. Video card market has always been very shallow for Mac towers, so after you get X1900 when you buy a MP, you basically have no further choices. Well, maybe they WILL release an unprage card for it later, like they did with x1900 for dual-core G5, but it not guaranteed. Not to mention the price for new card, if it is released.
So basically, it is cheaper to buy a new computer when the one you want to upgrade gets old.
Some good points, but not all CPUs are going to be incompatible with the mobo - Intel has such a large line of CPUs chances are you will find something off-the-shelf to upgrade your Mac Pro with in the future. Video cards aren't cheap, but are still a lot cheaper than buying a new machine and they make a big difference in games, bigger than any other component besides the CPU.
You are correct that the Mac Pro offers too few video card choices - either an underpowered 7300GT or the X1900XT. However, when the next update shows up and new video cards become available, you should be able to get one for your Mac Pro. So there is an upgrade path there as well. And who knows? Perhaps Apple will take my advice and start letting a 3rd party make a line of cards for them (like BFG, XFX, etc), giving us more choice.
Even taking all the limitations of the Mac Pro into account (server-based design and thus expensive, not as many upgrade options as PCs), it is still more upgradeable than the iMac and thus a better choice for someone who wants a Mac but wishes to play games at high resolutions and have some real upgrade potential.
A quick comment on the whole "buy a PC for games, and a Mac for everything else" line of thinking -
I have done this myself, and in many ways it works. However, my next setup will be (as I said before) Mac-only. The reason for this is that a lot of people (myself included) continue to see Apple's effort to bring serious gaming to the Mac as not yet enough - we need a midrange tower with lots of upgrade potential and timely releases of both midrange and upper-range video cards, as well as drivers on par with the PC world. But many people's reaction to this situation is to simply buy a PC and not play any games on the Mac.
The problem with this is that by going PC for games we are telling Apple and software developers that we are not interested in gaming on the Mac, and developers wonder if we want boxes shaped like a transformer with LEDs lighting up all the wires and whatnot. Yes, there are major hurdles to be overcome before the PC gamer crowd takes OSX seriously as a gaming platform, but if we aren't buying Macs and playing games on them we are sending a message to Apple that will stymie further gaming development for the platform.
Which is partially why my next machine will be a Mac Pro, and I will buy all my games for the Mac if a Mac verison exists. I want Apple to know that they need to improve their game library and hardware choice, but that they are moving in the right direction.
As to your comment that simply buying a new iMac makes more sense than upgrading a Mac Pro, it depends. In the case of the original poster's 20" iMac, yes, I can see using it for a few years then selling it when the video card can't keep up anymore and getting a new 20" iMac. But that line of thinking starts to make less sense as you move into the 24" iMac, which costs more and will stay current longer due to its better components.
At this point, an ideal "gamer Mac" would be a tower version of the 24" iMac using all desktop components - a powerful single-CPU machine with an upgradeable video card and no display to reduce the price or at least offset the move to desktop components...
