iWeb works OK with Lion/Mountain Lion as long as you update to V 3.0.4 which is on the iLife '09 and '11 disks.
iWeb '08 has problems with saving and crashing under the new OS X.
See this page for info about running iWeb with Lion/Mountain Lion...
Yes, Lion is compatible with iLife 00 and iLife 11. However, if you don't already have iWeb 3 you will have to purchase the iLife 09 or iLife 11 boxed disk from one of the 3rd party retailers like Amazon.com: iLife 11 in order to obtain it.