If you can notice it on the desktop, you will notice it more in game. What I suspect is the game you play was not really running in 120Hz when you tested. I noticed this alot when I made the switch to windows 7 and some games refused to run in 120Hz mode until I apply refresh lock in ATI tray tool. Luckily for me I know how 120Hz feels when running on XP and knew straight away when it is on 60Hz.
I have compared IPS and TN side by side and would take TN 120Hz over IPS 60Hz anyday. The loss in IQ is not that great since you view straight on most of the time anyways.
I used 120Hz LCDs on the desktop here and there since they were first released retail while SysAdmin'ing at my last job. Always did love it for desktop work, but could never try a game or 3D app with one.
When I was gaming, I made sure the games were running at 120Hz by confirming the signal out, forcing the framerate in RadeonPro, and/or testing out Vsync enabled which then locked at 120FPS. Games which I enabled vsync never dipped below the refresh rate. Then, of course, there were games that had no hope of hitting 120FPS unless I started reducing things. In cases like that, there was no visible difference even when scrutinizing.
I guess you could say I did "notice" it, but it's effect was so miniscule that unless I specifically looking for it I wouldn't see the effects. For example, dragging windows around in a game, or in cursor movement. Panning around the camera at various speeds, general gameplay, etc, I just never really noticed a difference. All in all, subjectively speaking to my personal experience, a 120Hz monitor for 2D gaming wasn't worth it for me.
Now in the whole TN/IPS thing: I stick by what I said for my subjective use. There are certainly good TN panels out there -- the one in my MacBook, for example, is pretty damn good for a laptop TN. But every desktop TN I've come across is fair at best, with the several 120Hz models I've used being some of the worst in IQ and backlight bleed. While I don't seem to notice any real benefit to 120Hz in gaming, I always notice the dithering, loss of colors, and color shifting (even while sitting dead-on; horizontal is fine but vertical is exhibits shift). I can kinda get used to a TN if it's my only monitor (like here at work), but putting it beside a quality IPS I just can't take the difference.
Anywho. For me, unless I was doing 3D, a quality 60Hz IPS panel trumps a 120Hz TN anyday for my daily home/home office use. But that's just me. Oodles of people love the 120Hz monitors, but it just isn't my thing
