If it helps at all, I don't think it's a terrible idea. I just suspect you're going to run into a good share of annoyances related to how Apple set up the firmware on iBooks. If you find it in you to keep going, I'd suggest getting this:
Screen Spanning Doctor
as referenced by other posters and seeing if you can get the iBook to run reliably with the lid closed while attached to an external monitor and USB keyboard/mouse. (iBooks don't natively support the "clamshell" mode that Powerbooks do, and you basically need that if you're going to run without the built-in LCD.) You can certainly work that out before going much further. (Note that if the "video problems" your iBooks are afflicted with is the classic "bad soldering" problem you should try to fix that because it'll still be a problem on the external monitor. Of course, if you fix it, then will you still want to tear them up?)
Assuming you can get reliable video output in clamshell mode then in principle it's just a matter of finding an appropriate case and transferring all the bits into it. Looking at the internal arrangement of the iBook it might be hard to stuff it into a case much smaller then it is now. Since the hard disk rests on top of the motherboard about the best you could do is get it into a box about 1/3rd smaller, assuming you're willing to do without the battery and CD-ROM drive. The problem with doing without the battery is the machine will forget the time and possibly its NVRAM settings when it's unplugged which might cause problems with the clamshell hackery. Your best bet, sadly enough, might just be to simply relocate the power button so you can punch it with the lid closed (I actually did this temporarily with a scrap Powerbook once) and then tape, glue, or otherwise semi-permanently seal the lid. Then you can go nuts decorating the exterior with paint, chrome, or whatever to make it look appropriately cyberpunk-ish.
Then of course your next task would be to build a "docking station" you can just drop your "deck" into. That would pretty much be a carpentry job, with the one annoyance being that the power plug is on the opposite side of the machine from all the other ports. I suppose you could just run some jumper wires from the power board to some big fat metallic contacts placed on the port side, which would rest on matching contacts in your dock when the machine were socketed. The neat thing about a vertical-loading dock like that would be that the CD-ROM drive would load-unload vertically at the top of the machine. Very futuristic and "Cube-Esqe". :^b