Well - once you start messing with kernel rebuilding and such, you probably can do anything; like I said, I haven't been following this too closely.
One thing to keep in mind - if you "root" your phone to install your own custom kernel (or even to do such development), you have to take care of your own security updates and such (you can't get the ones that are pushed out without going back to the official kernel).
Personally, for myself, while I am pretty sure I could do such a thing (if I even had the time to do it!) - given that my first linux install was Turbo Linux 2.0 on a 486 laptop with 8 meg of RAM back in 1995 or so - I still would avoid it, considering I paid full price for my G1 from TMobile not too long ago (it was cheaper to go this route for the plan I wanted). I am wary of bricking the phone, I am also wary of losing stuff...
But if I could do it under a "user mode application" (ie, a regular app) using the regular/standard SDK/API for java, that would be more my style (once again, if I only had the time).
