When you are asking about the ram requirements, you mean what kind fo ram does a tray loader take? In that case, it uses SODIMM PC66 ram.
As for Cd-Burners, externals would have you limited to USB 1 connections since you ahve a tray loading iMac, which is a max 4x speed (slowwwwwww). wegenermedia.com sells an internal replacement if you wanted to go that route, but you're starting to talk about putting a lot of money into an old machine at that point.
You don't need 9.2 to install OS X. The only thing you need to have done is the firmware update.
If you used firmware update 1.2 and it said you may already have newer firmware, then you probably ran it a long time ago and forgot. If you check your apple system profiler, I believe its supposed to say the boot rom is version 3.03f.
10.3 shouldn't be any slower than 10.2 I don't think. Apple's done a good job optimizsing each version of OS X better than its predcessor. But 10.2 was a fine OS as well and can run most OS X software.
external hard drives, like the CD-RW drive option, would be limited to USB 1 speed, which is good only for backup purposes. a better option would be an internal upgrade. see
http://www.djonmac.com for instructions.
I understand your concern about buying things with your credit card online, but here's the reality of that situation: far and away most idendity theft occurs from people going through your trash, or using "phishing" email scams, or from friends and relatives. Many of the high profile credit card company breaches have been at the credit card processors themselves, so whether you used your card online or not didn't make a difference to those security breaches. You could get scammed by the employee at a physical store as easily or easier than an online store in many cases. Buying from the internet is safe when you buy from reputable sites with secure pages (indicated by the little yellow lock at the bottom of your browser). if you feel really unsafe about it, some credit cards offer random one time use number generaters for buying online, or you could get a visa gift card or secured credit card which would prevent anyone from having access to any more money than you have on there.