Got it in one. The drive's bad, but there's a real simple test you can perform that will rule out all software issues.
Reboot the unit, hold down the option key. When you get to the open firmware boot selector, insert a disc. Make sure it's a disc other computers can read so you know it's good. If the drive still spits the disc out, then the drive is bad. Since the OS hasn't even loaded at this point, we can rule out any software related issues.
I wouldn't wait too long. Virtually all PPC units are on Apple's vintage list, so that means the clock's ticking before you won't be able to get any parts short of gray markets like ebay and craigslist. In such cases, the drive is probably already on its last legs when you get it. If you have an actual repair shop put in a drive, from Apple, it will likely be a used drive, but I'd put your odds much higher that the drive will last you a good couple of years more.
I also wouldn't recommend attempting this particular repair yourself. It involves removing the top case, and on the PBG4s there's two kind of nasty gotchas. The first is there's a very fragile connector on the logic board. There's a plastic lock lever that is very easily broken or lost, and then your top case cable won't stay in the connector, which is bad. There's no way to fix that short of a whole new logic board. The second gotcha is that unless you know what you're doing, you're going to bend up the bottom case pretty bad trying to get the top case off. There's a trick to it, but that trick makes it more likely you'll damage the connector I was talking about a minute ago unless you know what you're doing. I've replaced one or two logic boards on these units because someone went all cowboy trying to get the thing open. It's not a cheap proposition either. Probably around $800US, for the board, cost. It's worth the money to get this done by a professional. If they bend your bottom case up, make them replace it on their dime, same with the logic board if they damage it. I also seem to recall the flex cable for the optical drive on these units as being particularly annoying. The plastic has a nasty habit of separating from the electronic bits when you try and pull it up from the logic board. Let that all be someone else's problem to worry about.