Ok...Solved. So here's everything I did:
1. Downloaded the update files, loaded them on to a USB drive and attempted to execute them from it (failed) and then from the HDD itself (failed). Apparently they also need to be executed from a CD (well, shit).
2. More research - according to some iBook experts out there in the interwebs, the CD drives and OS 9 on these machines are EXTREMELY picky and yes, the laser pickup has trouble as the drives age. They also only like certain CD-R media burned at certain speeds due to this finicky pickup (basically, its ability to compensate for disc wobble is diminished and it loses its place on the disc). Most people had success burning from toast from an OS 9 environment. Older OS X environments are very hit and miss (more often than not, misses) and it’s definitely a no-go for any intel mac.
3. With that knowledge, I fired up my PowerMac G4 Titanium (has a CD writer, PPC, and the ability to boot OS 9 natively), completely wiped its SSD, partitioned it unter OS X Jaguar which allowed for the install of OS 9 drivers to said partitions (must be done from a clean drive hence the wipe) and re-installed OSX.
3a. Once Jaguar installed, followed this post:
http://macos9lives.com/smforum/index.php/topic,1859.0.html and restored the second partition with the OS9 "drag&drop" DMG. Then, made sure to re-bless the System folder, rebooted with option key held and booted the powermac G4 into OS 9.
3b. From there, went to Macintoshrepository.org (via classilla..thanks to whomever baked that one in!!) and downloaded Toast 3, then downloaded the 9.2.2 universal iso and burned it via toast 3 at 1x speed (dear lord).
4. Fired up the iBook, popped the newly minted CD in, crossed my fingers and said ten hail mary's and...it read it!!!!. Quickly restarted holding C key to boot from CD, wiped the HDD and installed a fresh minty copy of OS 9.2.2!!
5. Cracked open a beer and enjoyed the classic OS goodness.
Thanks to everyone who help me out with this, I definitely learned a lot throughout the process and have a newfound respect for the classic mac whisperers! I absolutely love this thing though and it's a great addition to my collection so totally worth it.