I would run Panther (10.3.9) or Tiger (10.4.x) (neither of which is "rigid", but much more malleable than most think) on that machine, but I would up the memory to 1GB. Anything less than 512MB and it will slow down when running multiple apps. You will be able to watch DivX movies at 600Mhz, but only with a very fast player (MPlayer, VLC), not with QuickTime. DVDs I'm not so sure about.
Good places for freeware/apps, other than Apple's own pages (they list non-Apple apps as well), are:
macupdate.com
versiontracker.com
Have fun!