Hey great machine. I've taken them apart a million times and they are work horses. The 600 and 700mhz are the best of the bunch.
Sounds like you do need a new hard drive if it was clicking. And if you can find a cd/dvd optical drive it should help, too. I have a kingston 256mb chip that came out of an iMac G3 I'd sell to you cheap but the price to UK is probably too much. Personally, I'd add the full ram and get a 120gb 7200 hard drive (there is a 128gb limit on hd space on that iMac -- not a great idea imho to get a bigger hard drive) and a dvd/cd player (the G4 Cubes use the same optical drive, fyi). Because these machines have firewire and because they usually just sat on someone's desk for years, they will out live us all and be useful with the firewire...
Try to get another 512 chip. You can always pull the hard drive and ram if you decide you don't want to go with your cheap iMac G3. P.S. Daystar use to make a G4 upgrade for these machines... see if you can find that CPU upgrade somewhere.
Another P.S. disable dashboard on Tiger and it will run even faster. I find it incredible that, as a previous poster here noted, that Word 2001 runs faster on our old PPC machines than it does on our new intel Macs... but its true. I'm using Word 2001 on my G5 and my new Macbook. Try to find an older copy.