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Can a malicious display install a rootkit on the device? If there's USB access, this seems like an avenue worth exploring...

It can via DP (make a DP connection that's actually Thunderbolt, flash the firmware) but that's on OS X - see http://bgr.com/2014/12/30/mac-os-x-thunderbolt-hack/.

And this DP connection isn't Thunderbolt, it just does DP.