Hi! If you hold down the trackpad button while powering on, it should kick out the disc.
I hate to say it, but I've had several slower-speed G4 iBooks come up with a problem like that, i.e. seems to work in option mode, but whatever you do it just gets to a blue screen. The conclusion in most of the cases has been, for a lack of a better explanation, that the board is bad.
You can rule out your optical drive failing to read the media by connecting a firewire external optical drive and booting from that, or another really good test would be to boot from another Mac's hard drive or optical drive while connected via firewire in target mode. If your machine runs fine off of a remote machine's hard drive, you know your board is good, so obviously that would be a good test.
I don't think you necessarily have the wrong installer media...if it was just the wrong disc, it should at least load further and then tell you it's the wrong one. Having the wrong installer media shouldn't cause the computer to freeze on a blue screen.
Also, I would remove the battery, Airport, and the extended RAM you just bought, just to rule those out, and then immediately reset the PMU and PRAM, and then see if it boots any further off the disc.
Good luck, and let us know what happens!