Unfortunately, the 5xx series Powerbooks have so-called "intelligent" batteries that can appear to be bad even though they can physically hold a charge.

If you google powerbook 540 batteries you'll find a number of different methods for resurrecting these batteries. None are guaranteed to work

Some samples

http://www.wwc.edu/frohro/520_Fixes/520_&_540.htm

http://seth.mattinen.org/notes.php?id=1

http://ourworld.compuserve.com/homepages/tenchi/500.html#Trouble-Shooters

BTW, you have a pretty nice PB540 - PPC upgrade and a boatload of RAM. Do you have the rev C cage as well?