Adding 512MB should be quite noticeable for the average user, but certainly for a power user. OSX can efficiently handle more RAM than Windows so in other words, if you give it more, it'll take advantage of it properly. 🙂
As for the reformat, the OSX disks that come with the iBook have all the standard apps included (iLife and so on) but a retail (boxed) version only has the system. My guess is you'll be using the included disks so you won't lose any apps. 🙂