Well, with your upgrade and a large amount of RAM you could enjoy OSX on this machine. I've run OSX on an 8500 with 384MB of RAM. The issues are less performance (while video performance won't be great), but more in terms of its setup and install.
With this machine, it has incomplete open firmware, thus requiring an installer and patches that are fairly easy to get (XPostfacto from <a href="http://www.versiontracker.com)." target="_blank">www.versiontracker.com).</a> Then the caveats of installing.
You need to be sure your partition that you install the OSX onto is in the first 8GB of a drive that's connected to the main internal SCSI bus. I've heard of people who may have gotten it working, but I never had any luck trying anything else. If you have the apple-OEM scsi card you may have luck with it, if you patch its firmware. The 8GB limitation is due to the firmware of your machine and no other reason.
Any additional drives, partitions and drivespace should be fine (and can be larger than 8GB). They will be available for use after the install with OSX. Make sure your disks are formatted with the latest DriveSetup from Apple, or the latest OSX supported 3rd party disk formatting utility.
When it comes right down to it though, I am likely going to install YellowDogLinux 2.3 on my 8500. The overhead for OSX is just a bit much, and you can get a 'classic compatibility' through Mac-on-Linux which is preinstalled with many Linux distros.
You'll get a little better performance, and less 'overhead' when you can drop out Xwindows and run just the CLI. That would be my overall preference and suggestion - use YellowDog Linux!
good luck!