That was the question I asked myself for months as I was changing from a PC to an iMac. Thought I had made the decision when I went to make my purchase, yet when I got to the store, I still spent another couple of hours looking and comparing the 21" to the 27".
Both have great pictures.
I was moving from a 24" but with the backlight the 21" didn't look that much smaller compared to what I had.
I bought my iMac in Nov/Dec 2010. So around 45-60 days later I started wishing I had bought the 27". Room and money were not an issue when I made my purchase. After reading a lot of the forum, based on what I do on my computer, I thought the 21" iMac was all I needed.
I've tried two screen, adding my old monitor but I got up this morning and went back to just the one iMac 21" screen and like it better.
I still wish I would have bought the 27"
If you think it might be two big, you will adjust to it.
I must admit though, the posts about 27" monitor problems played in my decision also.