As for the iBook itself, it's future is hard to predict. There's no doubt in my mind that the 12" Powerbook is cannibalising a lot of potential iBook sales, but the model continues to be VERY popular in schools, so I doubt it'll be discontinued. Hopefully they can get a low-cost, low-power version of the G4 chip (something newer and better than the current G4 portable chips) and take the iBook into G4 territory, or maybe they'll go with IBM as you suggest.
The G3s really are very good chips, and for consumer-level apps they can still be very useful. One gigahertz plus G3s would be welcome, particularly at low cost.
the G3 in the iBook already is an IBM chip, iirc.
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