I think this question has new relevance considering that Apple has discontinued the Thunderbolt Display and is likely getting out of the display market. The current 21" imac would be a perfect candidate for repurposing as a display—but only if it could be used as a docking station, and not simply in the rather useless "Target Display Mode."

In a similar way to Jay and Albert, I simply cleaned off the contacts between the display and dock connector. Then I bent the small metal tabs on the display positioned opposite the two metal pads on the dock connector (this is what connects the home button). After that, the button worked fine.