$550 sounds a little high for that iMac, considering you can buy a new eMac 1.25 GHz with Combo Drive for $1049.
If you already have the monitor why wouldn't you try going with a tower? Unfortunately you would have to buy a pretty recent machine to make use of the DDR RAM, but a new eMac should do it (but then you can't use the monitor for anything more than mirroring, although I THINK there's a hack like the one for the iBooks).
Look into a G4/400 or G4/450 tower. These models are going for between $500 and $700 depending on configuration, and their stock graphic card has both VGA and DVI connectors, allowing you to make use of your LCD monitor with ease. You wouldn't be able to use your DDR SDRAM, as these towers just use plain 'ol SDRAM, but you could use your hard drives you have laying around. For general usage, such as surfing, e-mail checking, DVD playback, and the like, any G4/400/450/500 will do the job just fine. We have a G4/400 with a healthy amount of RAM (896 MB) and it works just dandy for those above mentioned purposes.
My 2 cents.
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