I have the same iMac running 10.3.8 just fine.
The 6GB hard drive is pretty small by today's standards so do a custom install with only what is needed on it (no language packs, no printer drivers, no OS 9, etc) and you'll have enough space left for other programs and files. Sure my iPhoto or iTunes library wouldn't fit on there, but they don't have to and I'm sure your friend won't have that problem either.
It ran fine for surfing and email with 320MB of RAM and now still runs fine with the same as a test server on my home network.
As for the typing issues, try another keyboard and see if that is the problem. Pretty much any USB keyboard will work.