An Intel Mini might work. But the RAM modules are laid one above the other on the board. It might be too high for the case. The G4 certainly would be.

MacBook is a much better bet. Those boards really are tiny. I don't see a massive problem with the idea of moving the cells about. Perhaps you could rebuild the battery in a more desirable shape with its own custom enclosure that would fit around the MB board inside the 12" case.

Looking at pictures (I have a nice one from the service manual of the bottom case), I think the MB board will fit nicely into the PB case, oriented as it is in its own case. This would leave space for the largely unmodified MacBook battery once you have hacked the case up a bit. HD would go on the right where the optical used to be. Standard cable would be fine for it too.

You have two potential stumbling blocks that I see:
First is the keyboard. The 12" keyboard uses a connector similar to those on the iBooks on the end of a very-tricky-to-mod ribbon cable. The connector has maybe 30 pins or more. The trackpad has a separate 4 pin connector which is probably USB, so you could use that, but it will cost you a USB port unless you can find an unused one to tap on the board. I really think you would have to cut out the keyboard and trackpad from a MacBook top case and hack up the PowerBook top case to install it in there. That would work fine. But its a bit of a job.

Second problem is the display. Unless you get really lucky and it turns out the 12" has identical pinouts to the 13", you're in for some trouble. This is unlikely given the GPUs are quite radically different on both Macs.

Yea, the only problem that I can see (judging by never seeing the internals of either of these machines) is the display and keyboard, the trackpad connector is pretty standard i believe (please, correct me if i'm wrong here).

The only way i could see the LCD working is if the MacBook display ribbon cable A) fits into the PBG4 case and B) has an LVDS connector or the same connector on the LCD side (i highly doubt that the macbook mobo and the pbg4 mobo have the same connector, but the LCD is possible, my PBG3(s) has the same LCD-side LVDS connector as my old ThinkPad 400, but highly different mobo connectors)...

I would be interested to see how this project turns out. I am in the market for a new intel-based mac but i just cannot justify the $1800 for the MacBook Air because of it's underpowered proc. I would be completely fine with no optical and a 1.8" HDD.

good luck!

This is going to be some job, but I think it's doable.
What would make modding the keyboard easier, is to grab a dead logic board unsolder the end off. It would save the trouble of cutting traces on the keyboard ribbon.
OR
Since the wonderful PBG4 is all aluminum, you could just as easily fashion a new home for a MacBook keyboard. The only thing I'd be worried about is keyboard size comparisons.
I've got a PBG4 12 and it's my favorite to use aside from my iBook. So I'm all with you on this mod.