What is the Arduino?
"Arduino is an open-source electronics prototyping platform based on flexible, easy-to-use hardware and software. It's intended for artists, designers, hobbyists, and anyone interested in creating interactive objects or environments."
The Arduino also happens to be a rocking AVR(atmega8/168) developer's kit, with a boot-loader, excellent documentation, and tons of libraries.
 Current status
Ian Daniher has edited a pre-existing makefile into a shell script (to upload a .hex file to the Arduino) and a makefile to compile arduino source files (.pde) into .hex files.
The shell script can also be used to upload .hex files made using the traditional build environment(avr-gcc), allowing for use of proper C code and non-Arduino libraries with this affordable and expandable development kit.
Both of these files can be used together to completely eliminate the necessity of the Java Runtime Environment, a clunky and unnecessary piece of software, from the Arduino platform.
 Wish list
In order to completely do this though, a pyGTK interface could be successfully implemented, allowing for the use of a traditional CLI editor such as nano, a custom interface implementing the popular drag-n-drop code bricks ( modekit has a scratch inspired system to program arduinos ), or a slim integrated development environment with code libraries and documentation at easy reference.
A serial interface providing datalogging, graphics, and a full serial console would be almost essential.
A means of creating an easy gui to the above serial interface, especially graphing and buttons, would be nice as well.