There are a few things you want to avoid if possible: extra re-encoding steps, and any encoding on your G3. G3s are not speedy at video encoding (or decoding for that matter). And in general, any time you re-encode a video you will lose significant quality.
So keeping that in mind, what kind of edits are you talking about, and what are the properties of the source file (resolution, framerate, mpeg1 or mpeg2, bitrate, audio sample rate)? If it's already DVD-compliant MPEG2 or VCD compliant MPEG1, and all you want to do is cut and paste (like removing commercials or picking out certain scenes), you might not have to re-encode even once. EyeTV's software and the open-source mpgtx (and probably a few more) can manipulate MPEG streams by just removing segments (usually not frame-accurate though) and not re-encoding. If you are planning more complicated editing like transitions, titles or other effects, you will have to re-encode at least twice (since basically no editors can work with MPEG video directly). I suggest in that case you re-encode to DV and use iMovie, then find a way to send iMovie's DV output to the PC before encoding back to MPEG to author the DVD/VCD. Depending on the length of the movie, your G3 could easily spend several days trying to encode it to MPEG again.