I'd love it if Apple did have a DVI input on the backs of iMacs since this question is probably one of the most frequent iMac related questions. It won't ever happen though.
Actually Chundles it can be done - but you wouldn't want to. It would render the machine useless other than for a monitor. I guess what I'm trying to say is at some point the machine will not be fast enough to be used much but the display can be adapted to be used with something else. By then however the display would be worth stuff all as well.
In fact this brings me to a very good point; everyone is always complaining about the iMac design and having to throw out the display when the machine is getting too old. Did anyone here efl bad discarding a CRT iMac because the display could still have been of use? I think not. By the time the new iMac will reach the end of it's usable life so to will the display. LCD's are here to stay this is true but think about the LCD in the original 15" iLamp anyone really itching to use one of those with their latest MacPro? Anyway I just wanted a rant.
You can use VNC / remote desktop solutions to view one computer on another. Not ideal for all purposes, but it's an option. There's some relevant freeware out there, but I haven't looked into it much.