Even if it would work, copying the .iso will not work, you actually have to copy the contents of the .iso onto the USB flash memory thumb drive, for which CCC can help.
The iBook will probably not boot from USB devices, even properly formatted ones.
Even if it would work, copying the .iso will not work, you actually have to copy the contents of the .iso onto the USB flash memory thumb drive, for which CCC can help.
You cannot boot from USB. 1.1 is too slow for that. You're so out of luck being that on your MacBook Air you have neither an optical drive or a firewire port, otherwise you could get the 800 one that hooks up to older models.
The only other way would be to partition the drive without destroying it, restoring the DMG to it, and then booting from that. But you'd need some recovery disks in the first place to even do that. That, or buying the external MBA drive to burn it.
Otherwise eBay is your best friend. Or post in the MR marketplace as WTB.
When I had an iBook dual usb (500 MHz), I used an oldish firewire iPod as a Tiger boot media. Restored the Tiger install DVD onto the iPod, then the iBook booted just fine from it, and the install went fine.
There are some descriptions on the net how a PowerPC Mac can be forced to boot from usb (with playing with Open Firmware), but I have never been successfull with that.