Yes to both of your "is it possible" questions.
In laptops, the wireless card is generally mounted within the main keyboard section, and the antenna wire is run through the hinge assembly and around the LCD panel. It is entirely conceivable that the hinge area could become a pinch point and eventually distress, amongst other things, the antenna wiring.
It's also possible for the Airport card to fail, though short of electrical or mechanical abuse, it's not all *that* likely.
For troubleshooting, you need another Mac which also uses an Airport -- and not an Airport Extreme -- card. Two basic steps:
1. Without doing ANYTHING else, does this "new" Mac laptop work correctly?
2. Once you've swapped parts, has the situation changed?
If it's #2, then wherever the situation changed, that tells you where the fault lies.
If it's the iBook, your best (financial) option is to write off the on-board wireless functionality and go to your local Wal-Mart and plunk down approx. $50 for their Belkin G+ MIMO USB adapter/stand, since it actually ships with Mac drivers (however, please note that their N and N1 adapters DO NOT ship with Mac drivers).
Airport cards cost an absolute FORTUNE, so unless you have to have one, they're not worth it.