The first iBook came with a 3 GB HD, which was a fair balance because MacOS needed only 500 MB space. The next revision in February 2000 had a 6 GB HD installed, the final second Edition sported a 10 GB drive.
You will regognize these ancient drives by their loud operating noise. If you want to replace them, there is no need to buy a superfast 5400rpm model, because the old controller hardware is not a speed demon in any way. Be sure to buy a standard IDE harddrive - U-ATA or perallel ATA, (not the new S-ATA standard) with a height of max.9,5mm. The controller is able to handle partitions up to 128GB.
You can buy a 160GB drive anyway e.g. a Samsung Spinpoint M5P 160GB (HM160HC), which results in a formatted 128 GB Volume. A standard 120 GB drive is only 111 GB formatted.
You will need to dismantle your iBook almost completely , there a more than 40 screws to go. Take a look at Ifixit.com for a good tutorial with a screw guide.
For those who prefer a much more easier method (only 19 screws), i have described a workaround in a short film.