(FORTUNE Magazine) – HAS APPLE GOT A deal for you--a brilliant, 17-inch LCD flat-panel display for $1,299, with a powerful desktop computer thrown in free. But the real bonus is that the computer itself does not take up any desk space. Zero. Zip.

With its new family of iMac G5 computers--there's a fancier 17-inch model for $1,499 and a 20-inch model for $1,899-- Apple has defined the shape and style of desktop computing for the next few years. Combining a widescreen display and a full-function computer in a sleek package that's just two inches thick, the iMacs are the first true all-in-one flat-panel computers. Not counting the keyboard or mouse, the entire system rests on an aluminum foot that's only slightly larger than an audio CD. It's able to fit not just on small desktops in apartments, dorm rooms, or cubicles, but also on kitchen countertops, living room credenzas, and other household perches where traditional desktop computers are unwelcome either logistically or aesthetically.

Other PC companies have tried to create flat-panel computers, but their designs invariably involved bolting a computer to the back of an LCD display, where it hangs like a goiter. Apple's triumph in both technology and design is that it incorporated the computer inside the body of the display, refusing to compromise either the performance of the computer or the elegant lines of the form. Clad in a clear Plexiglas frame around a snow-white bezel, the iMac resembles a giant iPod portable music player. The design similarity to Apple's amazingly popular iPod is not coincidental, and no doubt Apple is hoping that millions of people will want a matching $1,299 desktop iMac computer as an accessory for their $299 iPods.

But as impressive as the iMac is, it comes at an awkward stage in the evolution of the PC. Many desktop computer owners are choosing to replace their bulky PCs with laptops, which are smaller, lighter, and more versatile, and the trend will continue despite Apple's impressive engineering achievement with the iMac. The 17-inch iMac I've been testing weighs 20 pounds and is relatively easy to move from one room to another, but compare that with my Apple PowerBook G4, which weighs a third as much and perches easily on my lap, which the iMac definitely does not.

The increasing popularity of wireless networks in the office, at home, and in thousands of public Internet hot spots also argues in favor of laptops as desktop replacements. The iMac offers greater processing power and a bigger screen--Apple has yet to offer a laptop based on the powerful IBM-made G5 microprocessor--but I'm still not going to take it out on the porch to catch up on e-mail or lug it to Starbucks to download files while I download caffeine. On the other hand, the iMac desktop can connect to wireless networks with an optional Airport wireless networking card ($79).

But let's pretend I already have a portable computer and I'm looking for a desktop machine for use at home as an alternative to lugging the portable to and fro. (And let's pretend I can afford to buy both a laptop and a desktop.) In that case, the iMac is certainly worth considering, even for people whose political persuasion leans toward the Windows operating system instead of the Mac OS.

I've shifted most of my work to the Macintosh, in part because of my appreciation for the Mac system's stability and ease of use, but in larger part because I'm sick of downloading Microsoft security patches and worrying every minute about viruses and worms and other threats aimed at Microsoft's Windows infrastructure. But when I need to work with Windows files, the iMac's G5 processor is strong enough to run a program called Virtual PC for Mac ($129 to $249, depending on the version), which tricks the Mac into thinking it's a Windows machine. A cruel trick, for sure, but it works in a pinch. That way I can have fun with the iMac, managing my digital music, photos, videos, and other creative applications, and work with Windows-based files and applications when unavoidable.

The entry-level iMac comes with the 17-inch LCD display, a 1.6-gigahertz G5 processor, 256 megabytes of system memory, an 80-gig serial ATA hard drive, an nVidia Geforce FX 5200 Ultra videocard with 64 megabytes of video memory, downward-firing stereo speakers, and a slot-loading drive that reads DVD discs and writes CD discs, suitable for watching DVD movies and burning audio CDs.

A better choice, for $200 more, is a 17-inch iMac that boosts the processor to 1.8 gigahertz, jacks up the internal data speeds for better performance, and adds a SuperDrive capable of burning data and home movies onto a DVD disc. As with the other iMacs, the optical drive slot is concealed on the side of the display. For those who think big and spend big, the 20-inch iMac ($1,899) offers a 160-gigabyte hard drive. As with the other models, an upgrade to 512 megabytes of memory is highly recommended, for $75 extra.

All come with the Mac OS 10.3.5 Panther operating system and a selection of software that includes iTunes, iPhoto, iMovie, iDVD, GarageBand, AppleWorks, games, Quicken 2004 for Mac--curious, since Quicken 2005 is already for sale--and the World Book 2004 reference guide.

Not bad, but not perfect either.

The videocard is fixed at 64 megabytes of video memory, which is on the puny side these days, and because of the iMac's design there's no way to upgrade to a more reasonable 128 megabytes. For serious gamers and graphic artists, the dual-processor G5 Power Mac tower, which is fully upgradable, is a better choice.

I would have liked at least one FireWire 800 high-speed connection port, instead of the two older FireWire 400 ports that are arrayed on the back of the iMac, just beneath three USB 2.0 ports. (By the way, Apple boasts that the backside of the new iMac is better looking than the front of most other PCs, which may be true.)

It would have been nice to have built-in Bluetooth wireless networking for Bluetooth-enabled peripherals, but Apple charges $50 extra for the optional plug-in. The module can also be bought in a package with a Bluetooth wireless keyboard and mouse ($99 for the combo), which will allow owners to take full advantage of the iMac's minimal demands on desk real estate by stashing the peripherals in a drawer when not needed. Even so, the wired keyboard that's included with the iMac can be stowed neatly atop the iMac's foot when not in use, reducing desk clutter.

Those quibbles are minor, however. Despite its relatively small share of the computing market, Apple continues to lead the PC industry in design and technology. Its attention to detail is fastidious, from the way the cooling fans draw air through the narrow system while remaining nearly silent, to the use of a single power cord without a power brick, to the way the iMac refuses to wobble, despite its single foot, when the screen angle is adjusted.

And when you open the box containing a brand-new iMac G5 and extract the computer mouse from its foam nest, it actually squeaks, thanks to its cellophane wrapper. Whether Apple planned that or not, it's anthropomorphically delightful.