... I'm surprised that you are satisfied with OS X on your iBook.. but I guess I should take into account that OS X isn't bloatware compared to Windows XP.
Probably the best thing to do for your computer would be to enable window compression... windows take up SOOO much memory, and compression helps a lot. So go to www.versiontracker.com/macosx , and search for "WinCompress" (no, that doesn't compress Microsoft Windows for you). Download it and run it -- it's an easy automatic way to enable window compression.
Other than that, I would recommend that you change the dock minimization effect to scale, and that you change the number of colors to thousands. Oh, and get more RAM.
As to your problem with the Dock icons, are you sure you are dragging them to the right place in the dock? It sounds like you are, but I just wanted to make sure. Applications must be on the left side of the dock (the side where the trash ISN'T).