I currently have an old 21 inch iMac that won't run Lion because it doesn't have a 64 bit chip. Other than that it works absolutely fine. I am however a part time developer and so I really need to make sure I have a machine that runs Lion for testing as a minimum.
Looking at new Mac minis they seem ideal to solve this problem being relatively low priced and able to do a few other things I'd find useful. My question is if I just get a new mac mini, could I somehow use the existing iMac as a monitor for it by using for instance screen sharing software. If I do then what will the performance of the screen be, I'd only really like to look at this if the screen sharing looks the same as if I had connected a monitor directly to the mac mini.
You could use the iMac to remotely connect to the mac mini over the network with apples remote desktop software. If you have a gigabit wired network between them then performance would probably be good enough to be usable for most tasks except 3d gaming or hd video I'd say. You cannot directly attach the iMac as an external display using a video cable however. Also, remote desktop access over wifi would probably not be ideal for everyday use
To actually perform this, just do the following:
This will connect the two computers and you sign in with the credentials of the account on the remote Mac
Screen Recycler is a utility that handles this transparently. Under the hood it uses a VNC connection.
I have the new iMac and need a Mac mini. Is it easy to switch the display back and forth or do I have to plug and unplug?
Also.. Will the Mac mini continue to run in headless mode when I'm using the display with the iMac?
I'd like to connect to it via Remote Desktop most of the time.
Yes you can switch painlessly from one to the other using ⌘+F2.
Here's the Apple knowledge base article about that, you may find it interesting in order to understand exactly how the target display mode works.
However, I'm not sure you can connect via Remote Desktop without having a physical screen connected (except if you already upgraded to Lion, the "virtual screen" functionality should do the trick). Unfortunately, I can't try this at home as I don't have any Macs without internal display.