I'd go mid or high end 24 inch... in terms of graphics cards, integrated suck even for regular computing (not even videos or games). My Intel X3100 lags even when scrolling through PDF's with big images.
The nVidia 9400 won't have that problem at the moment, yet, but running an integrated graphics card at 1920*1200 is asking for trouble sometime in the future I think. Even if you aren't gaming, dedicated graphics are always better.
First, the OP asked about an iMac that doesn't include the 9400m.
I have a rev B MBA that I use as my primary computer. I connect it to a 24" Apple LED backlit Cinema Display. I can play HD video and get the most stunning images ever. That is on a rev B MBA with SSD that uses a slowed down 9400m. I have even connected it to a 30" ACD with resolution all the way up. PERFECT.
That 9400m is NOT junk. Will definitely play video and some games. Yes, it is integrated and that is not acceptable for some... But for most, they will not ever see the difference if they're not gaming. It definitely will play HD video without a problem in the world.
Not saying I think that Apple should not have dedicated RAM for the graphics, but it is a little more powerful than you have indicated. And, the 9400m is not even comparable to the old Intel 3100... that was not good.
As far as high-end, no it's not right for someone spending $1799 on a computer... but it's only included on the low-end 24" $1499 version. However, I suspect most people that buy it will be very happy with it.
Let's remember that each buyer is different, and just because the lower end iMacs use integrated graphics RAM, the 9400m is perfectly capable of driving 30" ACD, and is not going to be troubled playing graphics on a 20" or 24" iMac.