Incorrect. Compilers take code and make it into a program. There are compiler optimizations for the G5 which let the software take advantage of G5 special features and extensions. However, if you consider part of the G5's full potential to be a 64 bit processor, then yes, to realize its full potential, it must be running a 64 bit kernel OS with 64 bit apps.
That being said, this is going to be an over all slow process as backwards compatibility needs to stay for the G4/3. The G5 is an AMAZING processor, even without a 64 bit OS behind it.
I am kinda intrigued by the idea of a fully 64 bit system. This summer I'm going to throw together an Athlon 64 system and throw a 64 bit linux distro on there like Fedora or Ubuntu. Should be fun!! Full 64 bit computing.
-Kevin