Hi,
What was lost in this maze I made above is that I no longer have the 2006 iMac, as I sent it to a family member.
However, just this last week I heard that 10.7.5 had fixed this issued and I remote logged into the machine to check on it.
Sure enough, it appears 10.7.5 has corrected the issue as I now see the other resolutions present.
However, I did not test them, but it they are being displayed, money is on that they will work.
Long story short, update to 10.7.5.
http://www.apple.com/softwareupdate/
One last thing - 2006 can NOT be upgraded to Mountain Lion (can't, won't, will never be, just is).