I wouldn't bother with any processor upgrades, but you can max out the ram, 72pin SIMMs - 70ns FPM (fast-page mode), you can put in EDO ram but it won't use those extra features.
Slam in a new larger HD and it can be an internet router, a lightweight web browser (I think that model was 68040 and 25mHz or better). Or a lightweight webserver (using httpd or something similar). Look in www.versiontracker.com
for 68k software.
Its not powerful enough to play MP3s.
Since 9.1 requires a PPC, the best you'll get is 8.1 (I believe its the *last* OS for non-powerpc computers) I'm sure if you put 9.1 on a HD and tried to boot from it on that machine it would hard freeze somewhere early during the boot process.
For what its worth, you may find MacMame with its 68k version to set up and have a mini-arcade machine out of the 650 you have. Enjoy!