Is the iBook the 366 MHz or the 466 (FireWire) model?
What is the hard drive capacity? A small hard drive may limit your options.
It could be upgraded to an early version of Mac OS X (Mac OS X 10.4.11 would be the maximum), but would require a firmware update prior to an attempt to install OS X.
http://support.apple.com/kb/DL1284?viewlocale=en_US
You are going to need to upgrade the RAM if you want to install Mac OS X. I would recommend maximizing the RAM with a 512 MB module.
Mac OS X 10.3 (Panther) Requirements:
http://support.apple.com/kb/HT2176?viewlocale=en_US
Mac OS X 10.4 (Tiger) Requirements:
http://support.apple.com/kb/HT1514