Hey! I have a houseful of Macs, too! I need to tell my wife I'm not alone in my madness.
I'm not sure about the tray-loading iMacs, but the slot-loaders' logic board drive controller cannot "see" anything bigger than, I think, 128GB--maybe it's 137; I've seen both numbers tossed around. That's why you got the recommendation to stay at 120GB, as the next larger increment in drives jumps to 160GB. This is not unique to the iMac; my Beige G3 has the same limitation with the on-board drive controller.
As for speed, I went through this recently. At one time, 7200-rpm drives were considered too "hot-running" for the passively-cooled iMacs. At Thanksgiving I had to install a larger drive in our iMac 400DV for my daughter and all I had in the parts kit was a fairly recent 60GB 7200-rpm Maxtor. I asked about heat production in this forum and the consensus was that heat was not a problem with newer fast drives. The drive seems happy in its new home at last report.
As for finding such things, this site:
http://eshop.macsales.com/shop/hard-drives/3.5-IDE-ATA/
shows several new 80G drives. My personal preference is Western Digital Caviar. I have no information on the "SpeedTools" software shown on the same page claiming to use software to break the 128GB barrier. Note the site has a number off caveats for this product. 'Nuff said.