I've got a 12" Powerbook that I've turned into my main machine, sans monitor or keyboard (for now at least- this is really bred from necessity as I'll be working overseas for awhile and so don't want to travel with a keyboard or monitor). When I was deciding between the iBook or the Powerbook early last month I took a serious look at screen quality. I liked the 14" of the iBook, as I found the 15" of the Pbook to be a bit bigger than I wanted, and the 12" Pbook maybe a bit too small. Upon close inspection the screen of the iBook just didn't look as crisp and nice as the 12" Pbook, which I ultimately determined to be large enough (though, honestly, photoshop work does get a bit crowded when editing digi cam pictures- but since the resolution of the 12" and the 14" are the same, not much is gained by the extra two inches..).
I know the 12" Pbook is more expensive than the 14" iBook, but if you're concerned about possible eye strain or problems than I think the 12", despite the smaller size, might be a better choice, as the screen is noticeably (to me) sharper and nicer.
I think it'll work fine as a desktop replacement either way you go though, as long as you don't mind the smaller screen size. External mice and keyboard might be preferred, but I'm doing fine with just an external mouse (a small laptop one that I *only* use to play games, otherwise I just use the trackpad for everything. I don't want to worry about setting up the mouse, particularly when I'm on the couch surfing the net). Hope this helps!