Hi JonK,
The bouncing dock problem with .dmg files might be corrected if you repair disk permissions with Disk Utility. If that doesn't do the trick, try restarting the computer. I sometimes have that problem and restarting usually solves it.
Do you have a copy of DiskWarrior? If you do, I'd recommend using it to repair any possible problems you might have on the iBook.
I don't know what's causing the USB problems - sorry. I'm not on my iBook now, but the next time I'm on it, I'll check the OS 10.2.8 preferences to see if there's anything there that might be causing the problem.
Claire