I'm in a similar situation to the OP as I also have a Powerbook G4 and am into photography, but find the Powerbook to being very slow and lacking as I have to pass by a lot of Intel-only software. The Mac Pro is too expensive, so an iMac is a nice compromise.
But.... if you're seriously into color critical work such as professional design, photography etc. you really need an external display suited for that. However, the iMac screen isn't a complete waste as you could for instance in Photoshop use the iMac for all the menus/tools and the external display for the just the photo you're working on. For web, email etc. the iMac screen is of course more than good enough. Certainly better than the Powerbook screen!
the 21.5" should do for me.
Mid 2011 iMac for Pro Photographers and Videographers is a useful read for deciding which processor etc. you should go for. I'd go for the most powerful processor option I can afford, then as others have suggested max out the memory (but buying from somewhere else, not Apple).
Since I already have a working computer and don't use it for professional work yet I'll wait and see if a new iMac appears in the next few months. I'd kick myself behind if the next one appears in a few weeks with USB 3, a BluRay DVD burner and a built-in SSD drive as standard for the same price or so

Still using a computer from 2005 you can see that I'm not the kind to upgrade every time a new Mac comes along, but rather long-time investments

So top-specs is the way to go if you want them to last for a while.
As for the Powerbook G4 -since they don't go for much these days anyway I'll most likely keep mine as it's nice to have a portable machine for tethered shooting in the field, checking mail on the go, showing clients my portfolio etc.