It's certainly possible to install Fedora on any drive you want, booting to it is a function of the Mac's hardware. If you can boot OS X from an external drive, there's no reason you couldn't boot Linux.
Okay the linux expert option did not work. The install still only sees the internal drive as an option in the GUI installation. It loads the proper usb modules, which is good. But still the drive isn't seen. I'm going to keep hacking at it.
I figured out that if you hold down the "option" key, you get to the open firmware boot menu on this iBook. I'm not sure if I'll ever be able to pick "boot to usb" from there, but I could certainly make a boot cd that tells the computer to look to the USB drive I suppose.