This is a hardware problem with the built-in ethernet (I had the same problem with a beige G3 233MHz running LinuxPPC about a year ago).
Here is what Apple has to say: A 10/100 MB auto-sensing hub polls the interface to determine the speed. In the process of the hub attempting to determine the interface speed, the Ethernet driver in the Power Macintosh G3 computers is performing a self diagnostic. Unfortunately the Ethernet driver completes the self diagnostic before the hub has determined the link speed and therefore determines that the network is down. (http://til.info.apple.com/techinfo.nsf/artnum/n22119) I fixed the problem by getting a Tulip PCI ethernet card and using that instead. -- Tracey Sebold -- 10th of Tammuz, 5761 -- You may worry about your hair-do today, but tomorrow much peanut butter will be sold.