As long as you can open the case, it's possible to transfert the drive from one unit to another.
It's also possible to install a new drive of greater capacity. You need an IDE/ATA drive of any capacity.
Use this link to get the instructions:
(official site)
http://docs.info.apple.com/article.html?artnum=300205
(unofficial fan site)
http://www.xlr8yourmac.com/systems/imac_isight_internals/imac_g5_isight_inside.html
Electro, January 2013