In a way, the primary difference between the mini and iMac is flexibility. The iMac is exactly what it is - a fast, powerful, integrated system capable of running almost any software written for MacOS X. But it comes at a relatively high cost and you don't get to pick which keyboard, mouse and screen to use with it to meet your specific needs. Thus, if you want that choice, and perhaps wish to trade off a little performance in exchange for lower costs and wider choices of such things as widescreen displays, then a mini is often better value and a more reasonable choice.
You can see that the decision really comes down to what it is you want the system to be used for. A mini with a good digital display would cost somewhat less than a 20" iMac, but leave you with a system which is somewhat slower, not just because of the slower processor but also because it uses a slow laptop drive instead of fast desktop unit. If email, web browsing and iPhoto are really all you'll do, then that isn't going to matter much, but if on the other hand your new interest in Apple systems leads you to rather more extensive image processing and tasks of that sort, the iMac would be better.
Ultimately, the iMac is more expensive for a good reason - it's more powerful. If your budget stretches that far and you have no objection to an all-in-one solution, it would make a better platform for all sorts of possible needs into the future, not just the things you contemplate at the present. On the other hand, a mini is sufficiently cheaper that were your needs to change radically, you could sell it and replace it more readily if the need arose.
If I were making the choice, I'd opt for a mini with 2Gb RAM, to which I'd add a reasonably inexpensive DVI-euipped 17, 19 or 20" display and a large external, firewire, hard drive for extra storage and backups. I'd make that choice because I'd know if I decided after 2 or 3 years I needed the power of a MacPro, I could sell the mini to help pay for it, but still keep the drive, display etc to make the transition easy.