Can anyone identify any silly mistakes I am making?
Besides not telling us what problem(s) you are having, if any?
Due to the nature of this setup i'm finding it really hard to debug as the serial port is being used constantly. As my processing sketch is printing to the port I am having to process it on the arduino and then re-write it to the port and print it from processing :s
But, that works.
You could get a LCD to attach to the Arduino, and write debug data there...
You could avoid the issues with debugging by breaking the programming up into smaller pieces. Get Processing and Arduino to send data back and forth reliably. Then, extend the Arduino sketch to do something with the data. Then, extend the Processing sketch to send meaningful data.
Extend one sketch at a time. Then, any issues are with the new code...