I would say 2GB halp especially with Hi-res textures and models as it has been said...
Newer games (ones to be released such as Battlefield 3, Diablo 3...) will definitely benifit from the 2GB though they should run great with the 1GB card.
The upgrade is a cheap one (90$ with student prices) and can give a longer practical life to your iMac...
I would go for it !