I'm not sure about ADB to PS/2 converters, as my recent experience with Macs has all been with USB based ones.

OS X is going to be dog slow on that box, assuming it's still at it's sub 300mhz speed. The more the memory, the better. Also, if you have a Quartz Extreme supported card for video, that might help under 10.2 (as there are ways to enable this even on PCI cards.) As far as drive space, you need a good chunk free to play with X. Apple recommends about 3gb of free space to complete the install. And as far as hard drive upgrades, the page you linked to indicates the system uses an IDE drive...

G3 and G4 upgrades are available for your box. G4 upgrades will result in many Apple programs seeing a boost from the Altivec engine, but it may also lead to a patch needed to load OS X as well.