That's almost the machine I am using right now. My 600MHz iBook came free from my father (who was going to throw it away!) with Jaguar, 256MB of RAM and a 30GB hard disk. I upgraded the RAM to the max 640MB and ran it like that for about two years, then when it came time to replace the inverter cable and reed switch (which tend to fail on these laptops), I dropped in a nice new 120GB Seagate disk and installed Tiger. It runs Tiger very well - it's not a speed demon, but it's fast enough that I don't feel a really huge need for a new machine. Anyway, get a 512MB stick of PC133 RAM and a copy of Tiger, and you'll have a good little machine on your hands. If you decide you like it, you might even go through the ordeal of putting in a new hard drive, or even a DVD drive.
PS - If you don't want to put in a DVD drive, you'll have to hunt around for Tiger on CDs, since the retail version was DVD only, and I'm betting Apple won't still send you the CDs.