Q: can I upgrade from intel core duo to core 2 duo so I can download the Lion

It is not possible to replace the CPU, so a new iMac is the only answer.

No.  The "Core Duo" CPU uses a different logic board with a different chipset than the "Core 2 Duo" CPU.  All you can do is sell your iMac and purchase a newer one.  One suggestion to save money is to consider a warranteed Refurbished unit from the Apple Store.  That would save you hundreds in most cases.

Hope this helps