slow horse,
Until the issue of why you are booting into OF is solved, installing a fresh OS on the HD will not help; the boot into OF occurs long before any software loads. A normal cold start will produce the startup chime, then the raster (gray screen), then either a flashing '?' (no bootable volume found) or it starts to load the OS. I don't know why you are getting into OF. If the powerbook worked normally before you removed the HD, remove it again (and leave it out), then see if you can start to a normal startup chime and get to the flashing '?'. If you can, then see if it will boot a CD. If this is a successful test, then something may be wrong with the HD and/or HD ribbon cable.
However, assuming you solve the OF issue, this article discusses the differences between the Restore CD and the System Install CD. You should be able to boot to either barring any hardware problem.
http://docs.info.apple.com/article.html?artnum=31204
If you cannot boot to the CDs, you can connect the Pismo to your iBook via FireWire Target Disk Mode:
http://docs.info.apple.com/article.html?artnum=58583
You of course can also remove the HD, place it in an external FireWire or USB HD case and install software from the iBook.
If you have access to a FireWire CDRW or DVD burner, you can in most cases boot to a CD or DVD when connecting to the Pismo's FireWire port. Use the option key startup in this case.
If you connect to an iBook, you will not be able to use your Powerbook G3 Software CDs; the installer on the Powerbook CD sees an iBook, not a Pismo. If connected via FireWire Target Disk Mode, the Pismo is seen as just another external HD, nothing else. Depending on which version iBook you have, you can follow one of two procedures, and both will work regardless of how you connect the Pismo's HD to the iBook.
1. If the Pismo's HD mounts on the iBook's desktop, use 9.x's Drive Setup to initialize the HD; this will also automatically update the HD driver. If using 10.x's Disk Utility to initialize the HD, make sure you check the option 'Install MacOS 9 HD Driver'; if you do not, your Pismo will not boot to 9.x. When initializing with 10.x, be SURE to select the topmost name in the list in the left column; this is the HD's model number...do not select the HD's user-given name.
2. If the iBook has 9.1 > 9.2.2 installed, you should be able to drag-copy the System Folder from the iBook to the Pismo's HD. Be sure the System Folder is "blessed" after dragging it over to the HD: Open the System Folder icon, double-click the System file (suitcase), then close all windows.
3. You can also use the iBook's System CDs to install software on the Pismo's HD. Depending on what version software came with the iBook:
http://docs.info.apple.com/article.html?artnum=42929
If the above instructions are not the correct version, please let me know exactly what OS came with the iBook.