-htg
Wow. There are a lot things that could be happening here.
First off, the G3 architecture was never designed for 160GB, not sure what the specs _are_. I've installed the exact drive you are talking about in a PATA enclosure that was not designed for it, and that enclosure's controller card only recognizes 120GB.
Based on this effect, it is possible that the device controller in the iMac has no idea what to make of the new drive.
If you had an external enclosure that is compatible with the drive (try MacSales), it would have its own controller, therefore all you'd need to do would be to use FireWire and you'd be bootable, if a tad slow.
Other items I could use your clarification, as I've already made too many assumptions about your system. This a 3.5" drive? Are you attempting to use it with the native internal PATA (ATA-100(I think)) bus? Or have you adapted it for SATA?