Holding the 'C' key at boot only works if you've a compatible CD/DVD inserted into the drive, assuming the drive still works? Holding the option key at boot brings up the boot disk manager. This should show valid boot systems that particular mac can recognise. For example the internal hard drive; a CD/DVD or firewire drive that has a compatible bootable OS, or a NetBoot bootloader on a server on your network.
An OS installed on an external USB drive won't show as PowerPC models did not support booting from USB. There should be a firewire port on the side and connecting the external drive (assuming it has a firewire port) with this method should work.
Updates for 10.4.x (Tiger) are still available:
Mac OS X 10.4.6 Combo for PPC
You should be able to download and install this easily enough?
It's been a while but I'm not sure now if you can update beyond 10.4.6 for the processor architecture of your particular mac? Only way to find out is to try it. If it does update beyond 10.4.6 then you should be able to go to 10.4.11. Beyond that it may be possible to install 10.5 (Leopard) depending on whether your CPU supports it?
Mac OS X 10.5 - Technical Specifications
How you get a Leopard installer may prove to be difficult but you could try Apple first (go to one of their shops) and failing that, amazon or eBay.
