01. Insert the Apple provided 'Mac OS X Install Disc 1'. The disc's 'Mac OS X Install Disc 1' window will appear.
02. Double click on 'Install Mac OS X and Bundled Software' (or equivalent).
03. When prompted to 'Restart' (reboot) the Mac, click on the 'Restart' button.
04. During the installation process, when the 'Options' button appears - click on it.
05. Click on the 'Erase and Install' radio button, and then click on the 'OK' button.
06. Continue with the installation process.
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With respect to ...
'you know the first time you opened the computer and u had to go through the setup assistant thing, that's what i want to do, set it up like it was new. thanks.'
... Apple had already performed the steps mentioned above. To place the iBook at that same stage (of the installation process) - you must now do such, also.