From Apple:
Installing earlier system software on your iBook causes the display image to shrink
Each iBook comes with system software of a certain version. If an earlier version of system software is installed on that iBook, the display image may appear very small and not fill the screen.
Display issues, shrinking video, video issues, older software, distorted video.
Use the software discs that came with your iBook to reinstall the system software. This process differs depending on whether the issue occurs in Mac OS 9 or Mac OS X, and which model iBook you have. Consult the iBook User's Guide that came with your computer for more information.
Important: Not all system software of the same version is exactly the same. For example, while you may have an earlier software disc that is labeled Mac OS 9.2.2 and your iBook came with Mac OS 9.2.2, the iBook may very well have additional software specific to that computer that is not present on the earlier disc. This can be true for both Mac OS 9 and Mac OS X. Because of this, you should always be sure to use the original software discs that came with your computer when reinstalling software.