My imac runs all the latest games great, with settings usually on high.
at 1280x720 or 1400x900
halflife 2 everything high except AA off - over 60fps
Prey - everything high except AA off- over 45fps
oblivion - everything high except AA off, draw distance about 50% - the game is smoother than my xbox 360
I assume it's because your imac is under-rammed. 512 mb, as opposed to 512k as in your sig 😉 is tooooooooo little to play these new games. maxed out to 2gb and gaming is not a problem at all.
I get better peformance from my imac 20" 2ghz, 2gb ram, 256mb X1600 than I did from my last gaming rig. A pentium 4, 3ghz, 1gb, 256 X800XT