Question: > 
> Above the desk, hanging on the wall, **were six security monitors**
> **displaying** black-and-white versions of the restaurant.
> 
> 
> Above the desk, hanging on the wall, **six security monitors
> displayed** black-and-white versions of the restaurant.
> 
> 
> 

Is the second version grammatical? If so, is it common enough to be used in everyday conversation?

Answer: 
Yes, both are grammatical.

In the first sentence, *were* serves as the primary verb. It's connecting the subject ("six security monitors displaying black-and-white versions of the restaurant") to the present participle ("hanging on the wall") to form the past progressive.

In the second sentence, *displayed* serves as the primary verb. It's connecting the subject ("six security monitors") to the object ("black-and-white versions of the restaurant") to form the simple past. "hanging on the wall" is serving as an adverbial participle to give the sentence the progressive feel that the first one has.

To me, both sentences seem to convey the exact same meaning. I can't really point out any difference between them.
The second example doesn't sound (read) quite right. You DO kind of need the **"were"** for the **"hanging"**.

However, It would sound perfectly natural to say:

"Above the desk -- on the wall -- six security monitors displayed black-and-white versions of the restaurant." 

*Or, better yet:*

"On the wall above the desk, six security monitors displayed black-and-white versions of the restaurant."

(P.S. *"Version"* isn't quite the right word here, either... maybe, *'surveillance video'* or just, "video".)