should I upgrade my processor?

I'm just going to point something out, which you may have already considered:

For that money, why not just buy a NEW Mac Mini? It will be MUCH faster than either a 1.6 or 1.8 G4. Yes, you'll lose those nice expansion slots, but your machine will be much more powerful.

Your Radeon 9800 is never going to get "awesomer" at this point. It's a three-to-four-year old graphics card.

Leopard will (very likely) support G4s, so no worries there. What Apple means is that if your system doesn't come up to spec for running OS X, an accelerator card wont help (at this point, this applies only to pre-G3 machines that were upgraded to the G3).

Do you really need to keep your G4 for some reason? Unless you really need (a) expansion slots and (b) dedicated 3D video (albeit 4 year old 3D video), I'd suggest the Mini for the same price.

 

Taking your questions in order:
1) Possibly. This presumes that your HDD(s) are not the bottleneck, and that you have maxed out the RAM on your existing machine. If your HDD(s) is full or filling up, or you're rinning with like 512k RAM, fix those items first.
2) Probably not so much. But if you're only going to do this once, if you can afford it, go for the faster unit.
3) Well, there are two G4s on them, and I doubt Sonnet gets the same quantity discount as Apple did...
4) This depends. You didn't mention what the rest of your system consists of, so going out on a limb here, if you've got just a basic G4/FW800, 17" CRT monitor, 512M or 1GB RAM, HDD less than 200 Gigs, well, you might find better value in either a MacPro, or even an iMac. On the other hand, if you've maxed the RAM, already have a flat screen, and/or otherwise extensively invested in stuff that could be moved to a new machine, you have to weigh the difference between spending $500 to upgrade an in creasingly obsolescent machine, or Apple currently has a few refurbished Quad Core 2.0 Ghz Mac Pros for $1899... One thing to think about is that Apple hasn't said whether MacOS 10.6 (whatever that's called) will support PowerPC architecture, or if 10.5 is the end of the line.

Ultimately, you have to weigh the costs. I did pretty well a few years ago when I upgraded a G4 with a 1.2 Ghz processor, maxed the RAM (1.5G) and installed a better graphics card and SuperDrive. It still is a good machine today, will run Leopard, and only the need for better portable computing drove me to buy a MacBook Pro recently.

5) Possibly, but it depends, like all else, on other factors. The bus speed of the computer isn't changing, so while you might see some difference, it's by no means a guarantee.

6) not really. Primarily what they are talking about here is processor upgrades that turn a pre-G3 PowerMac (and some 68040 Macs, if I recall) into a G3 or better. When I put the Sonnett upgrade in my G4, all I needed to do was press the MB reset button, and I was up and running. Presumably the same will be true on this machine.

Of note, I also have an old PowerMac 8500 with a Sonnett G3 card in it, and I have had it running Jaguar, but the biggest issue with doing that is you simply cannot cram enough RAM into a pre-G3 machine to do it as anything more than a curiosity.

Viggen61
MBP 15" 2.33 C2D
G4 Digital Audio
PB G3

 

if you do this you are looking at 2-3 years of guaranteed application support. Leopard will support the G4 but what ever comes next, probably not. you'll notice the difference but that machine is getting older. If you aren't heavy into 3d stuff I'd get a mini or save up for something else.

 

Throwing good money after bad is never worth it. With the constant upgrade cycles you can get the previous generation of Intel Macs for next to nothing these days.