I have an old Daystar G4 in my Pismo, at 550MHz, and I have 1GB of memory. It definitely can handle things better than a G3 Pismo can, and is suitable for surfing, iTunes (although it still encodes somewhat slow), etc.
Realistically, however, you'd be better off putting your money into something else, unless you have a pot of money just sitting around. The biggest issue I have with my Pismo is the 120GB limit for the hard drive. I was thinking of using the Intech Hi-Capacity driver, and actually shelled money out for it, but it wasn't really worth it because you have to have 2 partitions; the first partition has to be 127 GB, and then you can use the >128 GB Partition on the rest of the drive...well, since the biggest ATA laptop drive is 320GB, which after you format it is about 299GB, that really only gave you a full 170-something to play around with.
I did manage to install Leopard on it, and it ran...ok...but there were issues in some programs, due to (I believe) the lack of a real video driver in OS X for the Rage chip in the Pismo. (The biggest issue was, I could look at my iPhoto thumbnails, but when I went to go into the big picture view to edit, nothing would ever show up). When I went to install the larger drive, I couldn't get Leopard to re-install, so I gave up and went back to Tiger, which is what I use on all my PowerPC's. (I suppose I could have kept trying, but installing Leopard on the Pismo was much more difficult than installing Tiger on my Lombards...which was really easy. Oh well, I'm running out of time to play with *all* my toys!).
Hope this helps!