Sorry to resurrect a dead topic, but I have some experience with Lombards and dead caches...
Basically, the only real effect of the dead cache will be that message upon startup. Once you hit the "OK", it will boot up normally. You won't have any Level 2 cache then, so some programs will see a slight decrease in performance (roughly 20% max, if I remember the old MacBench benchmarks). In reality, you likely won't notice much of a difference, if at all, in your user experience.
The good news is, it should run slightly cooler without the cache. This will also mean that you should get slightly longer battery life, but I'm guessing your battery is already likely dead, and spending $80-$100 for a replacement at OWC is too cost prohibitive.
The other negative you should be aware of (I found this out the hard way)-->OS X will *not* install on a Lombard with dead cache (the Classic OS's will still install, however). The weird thing is, if you already have OS X installed on the Lombard, and reboot, it doesn't run the memory check like OS 8.6 and OS 9 did (well, it may run it, but it doesn't interrupt the booting process to say anything to you). In that case, if you want to install OS X, you will either have to get a different processor, or have another computer install it to an external 2.5 inch drive, and then place it internally. (How did I find this out? I bought a Lombard on ebay with 10.3 installed, made sure it ran ok, then decided to do a fresh install of Panther...after wiping the drive, and starting the install, I found out that I was screwed...installing Classic then told me that the cache was dead...).
Be excellent to each other!