There are lots of very informative threads on this topic. Here is my considered view for what it's worth.
Firstly, iMacs do run on the hot side. They are pretty cramped (yes even the 27") and designed to be svelte. That has a cost.
Second, they get hot to the touch. This is most certainly by design. Touching your iMac tells you nothing except that the heat dissipation is working well. If you want to know what's going on inside, which is the point, use iStat or similar.
Third, for normal use, the iMac does not require user intervention. This begs the question "What is normal use"? Here's my take. If you upgrade your hardware regularly, don't worry about temps. If you want or may want your iMac to last into the 3 to 5 year range, you should give it a thought. If you use your iMac mostly for email and websurfing and writing papers, forget about temps. If you do marathon gaming sessions, if you often game in bootcamp Windows, or if you do video processing or other "heavy lifting", you should give temps some thought.
Fourth, most people who worry about temperatures worry about them needlessly; see point three above.
Fifth, if you do use your iMac for heavy work or often use Windows and do want your machine to last a bit longer or at least know what's going on, the current prefered solution (imo) is iStat or Temperature Monitor or similar, which will give you temps in the menubar or in the Dashboard (OSX side only), and smcfancontrol, which will let you manually set minimum fan speeds (the setting can only be done from OSX, although you can have the fan speed settings carry over to a bootcamp Windows session provided you do a restart and don't switch off the iMac).
Sixth, if you are setting fan speeds and looking at temps, what should you be looking for? The GPU and CPU are precious and expensive to replace obviously but they are also rated for quite high temperatures. The iMac is designed to shut itself down before you get to that point. What is rather more fragile is your internal HD. High temperatures don't kill HDs immediately, but they do reduce lifespan/increase failure rates. Of course you should be timemachining or similar anyway; but replacing a HD is tedious and stressful and can be very inconvenient. Again, having given due consideration to the points above, I think it's good to set speeds to keep your HD temps in the low 50s C. Under 50C is fine, over 55C is bad, in between is, well, reasonable given what the iMac is. (I should note when I talk about temperatures here I'm talking about high temperatures suistained over a period of time. Spikes in temperature, when you are transcoding a youtube clip or something, that's not worth being concerned about. I'm thinking here about all-night Crysis sessions or whatever.)
Seventh, and final point. Environmental conditions play a role (more than I originally thought). Depending on where you live, ambient temperatures will have an effect - I'm in Japan and temps are clearly higher in summer than winter inside the iMac. Also, if you live in a dusty environment, it's not a waste of time to dust around your machine and desk regularly - your fans will suck up that dust over time.
Eighth and actually final point. External fan solutions sound better than they may actually be. I'm not an engineer of any description, but I have read authoritative-sounding accounts of how the fans in the iMac are carefully and cunningly placed so as to maximize efficiency, by directing airflows from certain areas to other certain areas over so and so components. Which is to say, it's all a pretty neatly designed system. There used to be mods around where people would carve holes in the backs of their G5s (this is in the plastic era), and electrical-tape fans on there or what have you. Bad idea (generally speaking) - it just messes with the airflows that some team of very clever Apple engineers burnt countless nights laboring over. Or something. I'm being verbose, the point is, placing little desk fans at the base of your machine or pointing your fan at the air vent in the back might look like its helping - hey, it's cool air, right? - but it may or may not actually be that simple.
Ok I'm done. Good luck!
PS Ok I lied about being done - if you do elect to use smcfancontrol, it's generally better to trying uping all three fans a small amount than one fan a lot. Again, they are designed to work in concert.
Update: iStat Menus versions 3 and above (no longer, alas, a free product) allow you to manage fans similarly to smcfancontrol, along with monitoring a billion other things. Its settings carry over to bootcamp sessions like smcfancontrol does. However, iStat Menus displayed some odd behavior on my machine, so I reverted to smcfc.
