Um, NO on the NO. I'm using my pre Thunderbolt 27 inch iMac as an external monitor to my 17 inch 2011 MBP as I type this.
http://support.apple.com/kb/HT3924?viewlocale=en_US&locale=en_US
Proof: http://i.imgur.com/ytjkm.png
Use a male to male mini displayport cable. It looks just like a Tunderbolt cable, but isn't.
My iMac is a quad 2.66 GHz i5 27" from 2010 with a 2560 x 1440 display. It DOES NOT support Thunderbolt.
My MBP is a quad 2.3 GHz i7 (octo with hyper threading) form summer 2011 with a 1920 x 1200 display. IT DOES support Thunderbolt.
Thunderbolt cables DO NOT WORK to allow the iMac to serve as an external monitor.
The mini displayport cable I have DOES work to allow the iMac to serve as an external monitor.
Just plug it in while both Macs are on and it works, or plug in a keyboard and press Fn - F2 on the iMac.