I've heard that faster hard drives can make a difference with applications that are super heavy on the data access. In your parents' case, though, the time, money, and effort that would go into adding a better drive in one of those suckers is probably overkill.
I'd add the RAM, though. It never hurts to add as much RAM as you can afford - and don't restrict yourself to Crucial or Apple for the RAM. Look on eBay, Newegg, and ZipZoomFly. Anything by PNY, Corsair, or Kingston is reliable, comes with a lifetime warranty, and should cost less than Crucial or Apple.
I have a 20GB IBM 4200RPM drive in my iBook and I use it just how you described your parents' use - browsing, itunes, PDFs in Preview, and music.
Try an OS X optimized installation of Mozilla Firefox. You might notice an improvement when browsing. With the AdBlock extension installed, you can really speed up page load times by blocking all those Flash and animated GIF ads. For music, I would suggest trying Audion (freeware). It's not as simplistic as iTunes, but it will run significantly faster on a 500MHz G3 - especially if you're using iTunes 6 or 7 right now!
If your parents are using MS Office, try nabbing a copy of Office X if you're trying to use Office 2004. I saw a noticeable improvement in performance when I downgraded.
Hope that helps!!