the difference between 256 and 768 is like light and day for even average users, however the difference between 768 and 1.25GB doesn't amount to much on an ibook with a slow bus
that being said i'd go for the 768 MB RAM
the slight processor boast isn't much for $2000 more between 1 and 1.2GHz but you also get the larger HD and AE, making it worthwhile