Conroe would be a better move for many reasons if they keep they same iMac design, as we know it can hold a G5, so a Conroe would fit easily. Also if Apple chooses not to use intel desktop chip in any line up(If PowerMac got Conroe it will be a bad upgrade from Quad G5) then it will seem like there is a whole in Apple's desktop line
Mac Mini-Merom
iMac-Merom
PowerMac/Mac Pro-WoodCrest
If Apple does put Merom in the iMac, i should hope see see a low end tower Mac at the low 2k price range.
If Apple does put Conroe in the iMac, they could raise the prices(100 or 200 on each model but i know this would be unwelcomed by many people) and find room for a eMac replacement with Merom
What ever Apple does they have room to add a new Mac to the desktop line(or a 23'' iMac but that seem unlikely)
(that said i voted for Merom
as it would leave room for a smaller iMac)