You can go up to a 1GHz processor by swapping the logic board. Thats the highest that model can go. You would also jump from 32MB of Video RAM to 64MB as its on the board as well. I would probably be close to a free swap, as I constantly see the 867 and 1GHz boards for about the same price, so you could turn around and sell your 867 board after you install the 1GHz.

Either board, 867 or 1GHz, will run Leopard as both are within the system requirements. Although, I would probably stick with Tiger with either of these.

I personally would do the HD swap and max out the ram and replace the optical, and not worry about the processor. The 867 G4 is a very useable machine.
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PowerBook G4 Ti 15" 867 MHz DVI
1GB RAM - 120GB HDD - 10.5.4