An invaluable tool that i ran across for this type of repair is the book the New Fit-It-Yourself Manual by Reader's Digest. It has general break downs of most major appliances and troubleshooting guides. And at under $20 on eBay, it's a steal. Good luck!!
The website EveryMac is an excellent resource for viewing the characteristics of any stock Mac. It looks like your iMac will support a processor upgrade but i can't find anything that addresses RAM capacity after that upgrade.
Test to make sure that it is the home button that is the problem and not the docking connector assembly. To do this, open up the (turned off) phone without disconnecting the three ribbon cables. Turn on the phone. Short the two contact pads on the top of the docking connector to simulate operating the home button. If the simulated home button works, look at the connecting feet between the screen assembly and the docking assembly. If it doesn't, look into replacing the docking assembly. Reading your description, I would guess that the docking assembly has been damaged. Good luck!!
The proximity sensors on the white iPhone 4s are different (or at least behave differently) than the sensors on their black counterparts. The reason that I know this is that I had a white one. I quickly installed it in an Otter Box. The proximity sensor was intermitant at best. I called Otter Box and was told that this was a known issue with the white iPhone 4s and that my best bet if I wanted to use eir product was to get a black phone. That's just what I did and it worked out great. Good luck.