I asked the same question a while back, and was also recommended to check out ScreenRecycler. After investigation, it looks like this program only allows you to extend your iMac screen to another computer screen, so it's not what we're looking for. Also, when I tried to email the guy who developed the product, the email bounced back, so there is unlikely to be any support there.
A different take on a solution may involve Elgato's EyeTV, which is a USB TV receiver which allows you to use your Mac as a TV recorder (works well). The model I've got, the EyeTV Hybrid, supports connection to games machines like the Playstation and Xbox -
http://faq.elgato.com/index.php/faq/more/443.
For this to work, I would need a cable that could connect my standard laptop video output to the EyeTV connections (composite or S-video). Does this sort of cable exist??