I think there were G3 upgrades for the 603 based Powerbooks, but the real limiting factor is the maximum RAM and slow bus speed. A G3 upgrade would really be wasted in those machines even if you could find one and pay the high prices they command. You'd spend less for a real G3 Powerbook and be getting a far superior machine.
Of course, G4 TiBooks are getting down in price to where even the G3 Powerbooks aren't a good choice if you need to replace an older Powerbook anymore.

As for OS choices, 7.6-8.1 would be much better than 8.5-9.2.2 which are resource heavy on those older machines.