I honestly can't say whether I'm having the same problem or not since I received my Dr. Bott Digital Video Link just after I had upgraded to 10.7.3 but I can also confirm that it isn't working for me. During the day I have a Dell Latitude hooked up to the iMac via a straight DisplayPort to Mini DisplayPort cable and all works as expected (damned good investment). However, when using the Dr. Bott Digital Video Link to connect either our Virgin Media V Box HD cable box (which I had pre-configured for 720p output) or my Apple TV nothing really happens. The screen goes dark, a blue screen momentarily appears and then it is back to the desktop.
All I can say from this is that the problem must be specific to the Dr. Bott Digital Video Link rather than to the Video-In function of the iMac itself else I don't think the connection to the laptop would work. However, I'm mystified as to why it would (apparently) work OK in earlier versions of the OS. Damned annoying.