Thinking of getting a mac mini....

I think it would be a good idea to upgrade the Mini's RAM with third-party RAM in order to save a lot of money. OWC is a good place to get it.

Here is a 20" Dell monitor for about $160. If you want something larger, you'll easily pay over $200, unless you find a good deal on eBay or something like that.

But this setup and the Mini you're looking at should serve your needs and not kill your budget too badly.

 

Only thing you might want to consider is maybe the mid level model with the dedicated graphics card. Would allow for some offloading of processing in the Adobe suite.

 

Can you hang on using the old iMac just a little longer?

The entire Apple product line, including the Mini, will be revamped within the next few months. We should see a "new Mini" introduced before the end of the summer, and I think the wait will be worth it.

If you go for a Mini with an external monitor, try to get a good display. Here's a page that lists IPS panel displays:
http://www.pchardwarehelp.com/guides/s-ips-lcd-list.php

If budget is a consideration, you might try a refurbished Mini from Apple. You can keep track of what's available here:
http://www.refurb.me/us/
(this applies only if you don't want to wait for the new models)

One more consideration:
If you're using a 2004-vintage Mac, you're still running PowerPC based software. Any new (or late-model) Mac with Lion (or Mountain Lion when it's released) won't run the older PowerPC applications anymore. You may need to upgrade or even replace some older apps. And if you have important data files created with older apps, you may need to "migrate your data" as well. Just something to start thinking about...

 

Any new Mac mini will outperform the 17" G5 iMac you have in every way. Also the 17" iMac had a TN display. If you are still satisfied with your iMac except for the fact that it is failing, then:

1. Buy the basic Mac mini that you mentioned at Amazon.com. An alternative would be a refurbished Mac mini on the Apple site, $519. The refurbs are good as new.

2. Any modern low cost wide-screen monitor will be as good as or better than what you now have. You don't need to pay extra for IPS.

3. You will definitely want to upgrade the RAM as 2GB is marginal these days. I'm a big fan of Crucial, which you can buy along the Mini on Amazon.