The cost of the iMac Applecare is very reasonable IMHO... $129. Yes, it must be profitable on average for Apple to offer it, but so is life (and health) insurance. But I'd argue that at least with my experience the value delivered is pretty good compared to most extended warranties.
I did hit the jackpot on it myself - they replaced a 2006 white iMac with a brand new 2.93ghz aluminum one this spring (2.5 years into the 3-year period) because of recurring video issues. They didn't even cheap-out on the specs - they gave me the mid-range model when the base model would have exceeded what I originally had in all respects. They were great about the whole process.
I don't think I'd spend more than 10% of the item price on Applecare (as is the case on some items like iPods/etc.), but $129 for a iMac is pretty reasonable.
I want to make it clear that I do not think that applecare is a bad gamble. Especially if you get one of the higher spec iMacs. As they replace a top of the range iMac with a top of the range iMac. However as with any gamble you should always remember that the house usually wins.