As with all things techincal, the answer is "it depends". Can you clarify
what you have in mind?
OneNote can certainly play a part in a project's lifecycle, if you limit
OneNote to what it does best: capture freeform notes and information from
meetings, etc.
Do you need document library and collaboration features? The SharePoint
offerings are your best bet.
Do you need publication/editing tools to take specifications and put them in
a standard format (i.e. UML) or for other public consumption? Word, Visio,
etc. are the best choices for that.
Do you need a true project management tool to track tasks and resources,
with links to documents? MS Project is the best bet (especially the 2003
Project Web Server).
In a small environment, OneNote integrated with SharePoint might be useful
enough. OneNote isn't meant to product finished/polished documents. OneNote
doesn't (yet) have the hooks into other products that its older more mature
siblings in the Office family have.
I use OneNote to track notes and meetings and status of projects I manage.
But I also use the more appropriate tools for documenting, publishing and
managing projects.