While this guide says you can only use low profile 9.5mm tall drives, you can absolutely use full-height drives in this iBook.
To use the full-height drive, do not replace this metal bracket with the padding. This piece is to provide stabilization/padding for the low-profile drives Apple uses in this iBook.
With a full-height drive, the polycarbonate case and RF shielding material rests against the drive with no space, keeping it still.
Just installed my full-height drive by omitting this piece, and the case fits together perfectly and iBook is happily up and running.