I know that Macs cannot boot off a USB external hard disk
Minor correction/clarification to prevent confusion. Macs with a Power PC processor (G3, G4, G5) cannot boot from a USB connected drive. Macs with Intel processors can boot from either Firewire or USB connected drives.
That said your plan should work, but I would want a return guarantee in case the used G4 arrived dead on arrival. I would also insist that it include the original set of install CDs/DVD that came with the computer. No matter how small the price if you do not get the original install discs it is not worth the price. Remember too that if you intend to upgrade to a more recent version of OS X, unless you have a "family pack" license installing another copy of OS X from another Mac you are still using — if it will install at all — is a violation of Apple's software license agreement and therefore illegal.
