http://www.refusesoftware.com/products/feature/1 <---That one there? Good to know - I've used ProTools with Reason before under OS X, I'll just have to substitute in Logic/Cubase - would Ableton and other DAWs work, or was it still early days back then?
The plan right now is to try and get a hold of some old PPC Macs and try to teach sound engineering, graphics manipulation etc using the top of the line software, which is now available on outdated and obsolete hardware, for free. Your idea sounds like just the thing once I've a small collection of G3/4s of similar spec.
I originally got the mac to have as a dedicated audio device. Tiger with 256MB RAM won't be pretty but will have MIDI - but burning CDs is a pain (don't get me started on bootable vs unbootable, DVDs versus replacement CDs). Looked at Linux but frankly it's not well supported and I'd be settling for open source replacements (although a few are good), still limited by poor specs. OS 9 may not be glamorous but I'd be a mouse away from having a nice little setup.
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Also got a Tascam MF-P01 - limited cassette multitrack unit. Records one track at a time, max four altogether, then extra bouncing - has headphone monitoring and I've a nice Peavey mic that should cover recording needs just fine. One cable to the jack input on the iBook and it's on to be mixed! That's the plan at least, a really simple, no frills setup.