iMac External Monitor Support
The Thunderbolt iMacs can only act as a display for other Thunderbolt-equipped computers (Macs only at this point, but once there are Windows PCs with Thunderbolt they should work too). Thunderbolt ports can output a DisplayPort signal, but the input ports (i.e. anything that's a monitor - Thunderbolt Display and iMacs in Target Display Mode) can only take Thunderbolt, not DisplayPort or DVI.

The Apple KB article on the subject: iMac (Mid 2011): Target Display Mode does not work with Mini DisplayPort cable


  iMac (21.5-inch, Mid 2011) and iMac (27-inch, Mid 2011) support Target Display Mode via Thunderbolt to Thunderbolt cable (2 m) when the source is another Thunderbolt-equipped computer.


(Emphasis mine)