Java without UI (awt/swing/whatever) works now. I've tried the Zarus ewe binary, but I expect others work too. And there's a work-around for the lack of UI - gtk-server will work too (with some minor hacks). But that's only really an answer for very impatient hackers.

Why Nokia didn't include Java as standard is a mystery, but then why the 770 didn't include any PIM software is as much of a mystery. Unless Nokia really were dead serious about this being a completely new type of gadget. Or perhaps they were just so far behind with development they chose to release what they had while they still had a chance of being first to market.

I've no particular insight into the workings of Nokia, but as a developer/project-manager if I had to bet on which, I'd say it was because they just got too far behind.