I don't think I would ever recommend using the computer that is 'paying its way' as a personal machine ( web surfing, email, Preview and iTunes [the last two are definitely not a professional apps] ). I suspect that all those other apps are being used for mainly entertainment and personal activities. Backing up is, of course, critical for any money making activities, but asking an iBook to do what you are even with 1G of memory is a lot. Memory accessing is only one aspect of the work your asking this machine to do. As gunug said, video processing is extremely cpu intensive, a massive amount of computational activities going on behind the scene. And with the usually slower drives of most laptops, you are also trying to use a small door to pass through several Grand piano's at once! When the machine runs out of real RAM, it starts using the disk and it is obviously having a hard time keeping up.
My suggestion would be to get a dedicated machine to do the video editing, at least a well equipped dual processor G5 desktop or the new Mac Pro. Much of the hardware in the iMacs are actually laptop-based ( slower drives, smaller cache sizes, less powerful video hardware, etc. ), if you get one, make sure it has the faster drives, as much RAM as you can afford and the largest screen ( 24" ). I would still recommend that you not use it for web surfing/iTunes while processing a video.
Apple has done a super job of memory allocating with OS X, but cycles are cycles, each time you add a running app, it will at least be asking for some of those. Whatever it gets may also be more efficiently used by that video editor.