Apparently they do support video input with a but
condition and depending on the Mac models used. Including the new late 2012 iMacs, both 21.5" and 27" models.
Bottom line it seems is that only Macs with Thunderbolt ports will be able to use it as a display.
New iMacs support Target Display Mode via Thunderbolt | Macworld
Target Display Mode on new iMacs limited to Thunderbolt sources (updated) | TUAW - The Unofficial Apple Weblog
UPDATE 2: Macworld has confirmation from Apple that the new iMacs will support Target Display Mode but only when the device they are connected to is also a Thunderbolt-equipped Mac; the trick won't work with older mini DisplayPort models.
So a new MacBook Pro connected to a new iMac will work, but older MacBook Pros will not, and a current MacBook Air won't work either. This also means the popular Kanex adaptors (which convert HDMI signals to mini DisplayPort ones, letting users plug things like games consoles into their iMacs) probably won't work with the new iMacs -- we've contacted Kanex to ask for confirmation.
This change is probably tied to the mini DisplayPort being replaced by two Thunderbolt ports. Whatever clever hack Apple did to make the mini DisplayPort connection bi-directional in the earlier iMacs is presumably difficult or impossible to replicate through Thunderbolt, as they have less control over the protocol (remember that Thunderbolt is an Intel design, and uses a special Intel communications chip).
UPDATE 3: Consider that, for legacy mini-DisplayPort devices to work, the Thunderbolt interface would need to consume a raw display signal -- not one wrapped up in the clever Thunderbolt protocol (note, PDF link) which combines PCIe and DisplayPort data into a single stream. This is probably why the new Thunderbolt ports cannot maintain backwards compatibility with older devices. However, when the device sending the signal also has Thunderbolt, they can negotiate a way to send the signal that the receiver can understand."
MacRumors Forums - View Single Post - New imac no longer works with ps3
For video input to work with non-TB port Macs, some suggested checking out some of the "atlona display adapters".
A quick check at their site on some of the suggestions say "discontinued" but one that isn't looks interesting and Mac software as well:
AT-PCLINK Atlona AT-PCLINK Wireless DVI with Stereo Audio and Dual USB - KVM Extender
Atlona Technologies connectivity solutions, cables, splitters, extenders, distribution amplifiers, converters, switchers for commercial, professional and industrial applications