Is it Necessary?

that really depends on what you are doing with it.
audio / video compression will show some gains, but browsing / email and word processing will be the same. Most testing is showing about 3~10% gains. So if you aren't going to do a lot of really taking stuff, then you should save the money.

 

Skip the speed bump, not noticeable at all, but go with more memory, that would REALLY help.

 

you do NOT need 2 GB of RAM. RAM is very nice, and I hesitate to say this because it makes Macs run much more smoothly, but your needs do not call for 2 GB.

I'm on a 1 GB machine right now, and I do what you do (plus Garageband, iMovie, iPhoto, all that stuff) and my computer almost never beach balls. And I run about 7 or 8 programs at once always.

Conclusion: Get a gig of RAM, you'll be totally happy.

 

1GB runs everything smoothly. Mine only beachballs on some heavy apps when I have iTunes running, but my iTunes library is somewhat large so that might be why.

If you ever need more, you can upgrade it yourself, it's not too difficult. If you want to be on the safe side, you can always just order the 2GB one online.

There will be basically no difference between 2.16/2.33 for the things you're doing.

 

The best way to get good RAM is to go through a good dealer, like OWC (macsales.com) or datamem.com. As far as installing it on the iMac, you just pop out two screws on a little panel on the bottom, and then put in the RAM, put the panel back, and you're done. REALLY easy.

Here's a guide with pictures:
http://docs.info.apple.com/article.html?artnum=303084