I had the same question, but took the gamble and placed a WD10EZEX in my iMac 24", late 2006. And it worked out fine, all the details at http://wickedjv.blogspot.be/2013/06/hard-drive-replacement-for-my-imac-24.html
SATA III drives are backwardly compatible with SATA II and SATA I interfaces. A SATA III drive will just be limited by the speed of the SATA I bus in the 2006 iMac, otherwise they work fine.
The Seagate ST2000DM001 you mentioned is fine. As for WD, I would not recommend the WD Blue or Green drives as your main system HD ... they will work, but due to their "energy saving" features you will not get the level of performance you will out of the Seagate or a WD Black drive ($89 at B&H Photovideo) WD100FAEX
Yes SATA III drives are backwards compatible (with SATA I at least) but it's a awkward area because when a SATA III drive fails to negotiate at SATA III speeds it defaults to SATA I speed. This can sometimes be a problem for SATA II capable controllers which continue to attempt a connection with the drive which has defaulted to SATA I speeds. This results in the famous spinning beachballs and logs full of continuous SATA disconnections, SATA I controllers rarely cause this phenomena with a drive defaulted to SATA I speeds