It is supposed to be possible to install XCode + SDK on a PowerPC. How easy is this? Can it be done with the latest version (3.2.2). If not, which versions? (I think the latest XCode needs an OS version that doesn't run on PowerPC)
3.2.3 is the current version, and it requires OS X 10.6, so no-go for your PowerPC.
http://en.wikipedia.org/wiki/Xcode suggests that 3.1 will run on PPC. It's OS X 10.5, which doesn't support G3s or slower G4s.
XCode 2.1, on 10.4, probably allows you to run on G3s, but doesn't include an iPhone SDK.
One challenge you will run into is that you may not be able to produce iPhone binaries for versions of iOS that Apple accepts for iTunes distribution—iPhone SDKs are generally tied to versions of XCode (with some backwards build compatibility for newer versions).