Yes, you bet. Drag-and-drop will work just fine.
If you were in OS X it'd be slightly trickier, but only slightly. With OS 9 you can just copy over the System, Applications, and Documents folders, then copy them onto your new drive when you do that.
Depending how sealed-up your firewire drive is, you may be able to open it up, plug your current hard drive in there, and copy everything over after your new hard drive is in the iBook.
Actually, which model iBook is it? the old toilet seats were bears to pry to hard drive out of...