There is no way to directly hook a DVI display into an iBook. There are some VGA -> DVI converters that you can use, but they are very expensive. Fortunately, most monitors that have DVI connections also have VGA connections, so you could use that instead.
Regarding 1280x1024 on an external display, the iBook ships from the factory with only the ability to mirror whatever is on the LCD (no spanning). However, there is a hack that will allow you to turn spanning on, which has been confirmed to work on the iBook G4. With this hack, 1280x1024 should be no problem.