I think "Their imaginations are disgusting" should also be accepted. The singular "imagination is" implies to me that it is a group of people imagining the same thing. "imaginations are" implies that it is a group of people all imagining different things.
Like "Teenage boys' imaginations are disgusting". All teenage boys have a disgusting imagination.
"The teenage boys' imagination is disgusting". This group of teenage boys have just presented something disgusting from their collective imagination.