G3 iMacs use the older PATA/IDE hard drives and they are getting harder to find. OWC has this one:
http://eshop.macsales.com/item/Maxtor/6L160P0P/
for a decent price but it has only a 90-day warranty. And I personally don't trust Seagate drives after they stepped in what the cow left a couple of years ago. I don't know enough about them to sort known bad models from good.
Newegg has several, although most probably cost more than you paid for the iMac:
http://www.newegg.com/Product/ProductList.aspx?Submit=ENE&N=100007603%2060000344 2&IsNodeId=1&name=IDE%20Ultra%20ATA100%20%2f%20ATA-6
Tech Note: the G3 iMac cannot recognize a drive larger than 128GB. It's a hardware limitation. To use larger drives, you will have to install the new drive (set jumpers to MASTER) and then start the iMac from an optical system disk--I hope you got them with the computer as they are now expensive.
Once booted from the optical disk, use Disk Utility to partition the drive. Set for two partitions, making the first about 125GB. Format it as Macintosh Extended and do not format the remaining partition. Now 125Gb of the larger drive is usable in that model.
There are reports that some 7200 RPM drives create more heat than the fanless G3 iMac can take. Google for "g3 imac fans" for ideas of how to mitigate heat if it becomes an issue.
Giving the potential expense, especially if you don't have bootable system discs for formatting a new drive, you may wish to see if the noise--assuming the drive doesn't sound like it is grinding itself to perdition--can be tolerated
OS: indigo slot-loading iMacs shipped with OS 8.6 and later with OS 9.0.X so, yes, you can downgrade.