I've got an iBook G3 (although is a later, square white one) and I've tried running both OSX and OS9 on it. Even though my iBook has 384mb of RAM it runs OS9 far better than OSX. So considering your iBook has only 128mb of RAM you should definitely run OS9 
OS9 isn't completely useless like some people think. If you head to the Macintosh Garden (google it) there is a ton of old software and games that can make OS9 quite functional and entertaining
OS9 isn't completely useless like some people think. If you head to the Macintosh Garden (google it) there is a ton of old software and games that can make OS9 quite functional and entertaining