Like Adrain said, you'll need a software update on the g5, but otherwise it should work just fine. There's plenty of performance in the g5. If you need more storage just use USB or firewire disks. Or, if you have a NAS you can use that just fine.
I wouldn't be afraid to use the g5 for basic video encoding with Handbrake or whatever your chosen app is. It will work, just really slowly.
One thing that I believe is worth thinking about is the resale value of the Powermac and energy usage. If you were, for example, to sell the Powermac and use the funds to purchase a base 2011 Mac Mini you'd have a system that would use significantly less power, include all the latest software updates, have a warranty and is so tiny it will disappear almost anywhere. Personally, I'd probably go this route unless the Powermac has some other value I'm not aware of.