10.3 isn't too bad. I'm running 10.4 on an iBook G4. I don't have a newer Mac to offer a really fair comparison, but I've seen a Mac with 10.6 in action, and it's kind of obvious there's a bit of eye candy difference, but typically you still have Firefox, Safari, Flash, etc etc.
I think the big push isn't so much that 10.3/10.4 is terribly outdated, but I think it's due to the fact that the iBooks are PPC chips, not Intel, and Intel is definitely the future of Apple computers.
Does that mean I'll buy a new Mac? No. But I'm also aware enough of the hardware the iBook has to realize, it may not be the best computer around to keep as a "main laptop." For me, it's just so I can be on Firefox anywhere in the house. Beyond that, I don't use it for much. In the same shoes is my mom, who has a 299mhz old Toshiba laptop from the stone age, and she uses her laptop in the same manner I use that iBook. Why? Because it still works.
After all, if it's working, why not use it? Just acknowledge the limitations it may have, as it won't be the best computer to run any hardcore applications on.