Way ahead of you JamminR.

I've spent a good chunk of time researching down this path until I shelved it awaiting the official MC API (which is the full source). It's easy to decompile MC, but a pain to maintain the decompilations from then on.
LuaJava is nice but if I recall correctly, I ran into major issues with the native calls on systems other than windows.
KahLua is actually the one I'm using in the latest version of my shelved tests. I don't remember if I had any major issues with it or not, but I did like how it tried to stay as faithful to the C library as possible.
Two potential problems I saw with such a project:
* Hard to get any user base. Same problem we have with ULib, really. People will see it as a CPU and memory hogging dependency... whether or not that's a reality.
* The shift between Java and a C based language (Lua) is jarring. While this is great for people used to C, most people in the community expect to do things the "Java way". This is in some way related to problem 1.
Something like this is actually why I was working on
otlib, which sadly hasn't seen any attention since last year. The goal of otlib was to provide a base admin system that could be used across multiple games (eg, gmod, ns2, and minecraft). That would give admins some consistency if they're running multiple servers as well as simplify our work if we wanted to support multiple games.