RAM upgrade
I did almost the same thing as you want to do except I went for the full 3Gb (just in case). I believe we have the same machine - 2GHz, 17" iMAC Core2Duo, c2006.
Best place I found the memory was
http://www.crucial.com/uk/
You can select your machine from the drop down menus and it will tell you which ones are compatible with yours. 2Gb will set you back just over £20 and a 1Gb is £12. Delivery is free and they are goooood. I can absolutely vouch for these guys, as I ordered mine on Monday afternoon and they arrived yesterday (Wednesday) afternoon. Plugged them in this morning, and its like my mac has been given the kiss of life!!!
I only upgraded to Snow Leopard last week to upgrade to Lion, and since then I had been experiencing massive freezes and crashes. My poor mac kept having seizures everytime I opened more than four Safari tabs or if I even tried to launch iPhoto. Snow Leopard needs a minimum of 1Gb RAM to install and run, but that is the absolute minimum, which was nowhere near enough to do anything other than install the OS. Lion requires a minimum of 2Gb, and I would recommend going as high as the system allows you to go, as you may find that 2.5 isn't enough. These macs can take a total RAM upgrade of 3GB, so I would recommend getting one 2GB and one 1Gb chip, and allow Lion to run more comfortably. I haven't yet gone for Lion, as I want to see how well the mac performs under the upgraded RAM, but I probably will do Lion this weekend, as the results have been phenomenal.
The exact page I went to for my RAM chips is as follows, but you should check it is the same as yours before purchasing:
http://www.crucial.com/uk/store/listparts.aspx?model=iMac 2.0GHz Intel Core 2 Duo (17-inch)&Cat=RAM
Also, when you install the chips, make sure you;
A) DO NOT let the chip ejector clips remain out when you insert the new RAM, make sure they can move back in to their concealed position before you shove the RAM in.
B) really push the RAM chips in. Don't do it fast, but push in firmly (that's what she said, haha). Support the top of the machine as you do this, but make sure they are in properly and as far as they can go.
First attempt was unsuccessful and I panicked...turned machine on, no chime, black screen. removed and tried again , pushed them in properly, i now love my mac again.
Good luck, and let us know how you got on!