I managed to reinstall YDL 4.1 today and purge it of the evil that is KDE. I can only get X to work in 8-bit (256 colours), which I suspect is because X is drawing via OpenFirmware, or at least to a framebuffer that was set up by OpenFirmware. A quick look through the board/forums suggests that I'm in good company.
Is YDL 5.0.1 likely to include better support for the display on these old G3 clamshell iBooks?