First, make sure the new drive is using Apple Partition Map, as this is the only partition structure a PowerPC Mac can boot from. Macs can write to almost any partition structure (FAT, UNIX, etc), so the files may appear correctly.
You can verify this by checking the drive in Disk Utility, connecting the iBook to another Mac the same way you did to format the drive and install the OS.
If this checks out, try resetting the PRAM of the iBook by powering on while holding P-R-Command-Option - keeps these keys held down until the unit chimes and reboots 3 times in succession.