I am not sure if this is a make issue, a GCC3 issue, a PPC issue, or a genuine problem with the bzip2 ebuild, but running GCC 3.1-r6 and make 3.79.1-r3 on an 800MHz Titanium Powerbook, emerge bzip2 fails consistently with the message "Illegal instruction" when attempting to compile bzlib.c. Manual compilation of the file in question worked without error, as did a manual make in the work directory, so I tried changing the invocation of emake to make in the ebuild itself (bzip2-1.0.2-r1), and the problem was resolved. Although it is in sys-apps, it seems to me that bzip2 is an important enough component of a Gentoo system that the bug report belonged in Core System. Apologies if this is a misclassification.
After reemerging make, this problem seems to have gone away, so unless someone can reproduce it, I apologize and suggest that the bug be closed.