I think it would be very cool. I have in my possession a 5.5 inch RGB monitor that would be awesome for a small arcade machine.
My only concern is where do the guts go and the probability of having to manufacture custom controls to make everything fit.
The 9" VGA model would be pretty cool and I have been thinking about this one for a while, as I have about 50 of those monitors ranging from excellent to fair condition. The scale would be just large enough for use with normal sticks and buttons, and maybe even have enough room inside for a mini-ITX system.
If you do this, please report back. I'd love to see the results.

RandyT