In fact, you might be able to stream the contents of one of those super-cheap video camera components on SparkFun.
I wondered about doing something like that with the serial camera folks seem to have had success with lately--although it isn't cheap.
Or make a text/bitmap display that can summarize the status of a weather station.
Yeah, I wonder about using it for accessing multiple remote sensor displays but I'm not sure if it offers a real advantage over HTML.
Or a microscopic command shell that lets you do live hardware I/O.
Or a point-and-click style interface.
follower, VNC also supports sending keystrokes and mouse input from client to server. Have you played with that part of the loop yet?
I haven't played with that yet but intend to, that's what I was referring to by my "input side of things" comment. 
As for the "byte at a time" problem, I thought someone was already fixing that?
Yeah, me. I just hadn't transferred the code over--plus this code needs to have null bytes, plus it needs to avoid buffering which still hasn't really got a solution yet.
And which Ethernet shields/adapters are you using?
I'm using the unreleased Arduino Ethernet board prototype but it uses the standard Ethernet library so it should work with the official WIZnet Arduino Ethernet shields and compatibles.
--Phil.