This is a pretty cool hack, and I think it could be done with some work. It would be killer to see an iMac painted black where the colored areas are now, plus the Xbox guts.
However. It would actually be easier to do this with an Xbox 360, I'm betting. The iMac display no doubt takes some form of RGB/VGA or digital video signal from the graphics card, and the original Xbox has a hack of a time putting out RGB over a VGA type output. It can be done with a specific VGA-enabling BIOS, but even then your receiving display must sync on green. I've attempted to use the VGA BIOS before on a 1.0 Xbox, and it was a nightmare compared to the luxury of the later Xecuter BIOSes.
The Xbox 360 can output DVI, RGB (component), and a slew of other video protocols, which are far more likely to work "out-of-the-box" with the iMac display.
That said, you should be able to observe a bundle of wires going from either the motherboard, or display driver board if one exists, to the CRT end, and get your video signal in that way. It's been a while since I've been inside a gumdrop iMac, so I don't remember offhand where the signal runs from. You could even make use of the built-in "Harmon/Kardon" speakers and power button.
If you want a project this weekend, disassemble the iMac and take lots of hi-res pictures, and I should be able to help out some :-) Watch yourself, though -- there are some components in there that can shock you. Most notably, the transformer that powers the CRT (that big red wire and suction cup assembly) and attached cylindrical capacitors.
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