Would upgrading it to 640mb (change the 128mb dimm to 512mb) make a difference as in youtube video playback, loading etc.. ?
Not really, G3 CPU is not fast enough for h264 video streams, complicated flash etc.
Though, adding RAM will make a big difference if you open a lot of tabs in Firefox or use XCode...
Also, the HD is a 30GB... I have a spare pc laptop 120Gb HD which i never ended up using in my A1200. Would the iBook G3 (Dual USB) accept it ?
Never tried, but it should accept 120GB HD.