I don't think there is a whole lot you can do to your iMac since it is fairly outdated. I recently found myself in the same quandrum and bit the bullet and bought a new iMac G5 just about one month ago. It is amazing..... but if you want a cheaper solution a refurb eMac is probably a great idea... You can get a G4 and a great machine to run X on. OS X works so much better on a G4 than a G3.
You know you may want to look at getting a new eMac that is left over since it has been discontinued. You might beable to pick one up for $700ish.... But it depends on what you want to pay.
The only real thing you can upgrade on your iMac is the RAM. It will go to 1GB supposidly... I had 512MB in mine.... while it will help, an eMac is probably a more logical solution and more cost effective even. Well, thats what I think anyway......