I have a G4 PB with a defective screen I'm installing Leopard on as I type this to try out as a potential media center machine.
I have already tried using a G4 Mac Mini, with mixed results. Using a USB2 hard drive, the files really skipped a lot during playback. When I went to a firewire drive, this was much better - but not nearly as good as using a modern mactel laptop (just to test). I checked, and the handbrake-generated files are fine.
I was thinking the PBG4 might be ok because it has core image support. I'll post an update as things progress.