Yeah, I have never used Java on the N900 but I have IcedTea installed on both of mine (at least one for sure, if not on the other one than I need to fix that).

Both run powerkernel and the non-phone one is overclocked, so I COULD test for you. Honestly though, I'm pretty confident CPU speed isn't the bottleneck - the RAM probably is. But I'm willing to experiment. I'd need instructions though, as I'm much too lazy and time pressed to do the actual thinking involved. :P

Oh, and I by no means wished to disagree with the idea that Minecraft is unoptimized - just being Java seems to me to be inherently inefficient. But I'm sure there's serious memory flaws here or there.

Either way, definitely better to install a lighter server. If you can't break blocks you'd probably die horribly in multiplayer survival mode, since even on an otherwise almost completely lagless server, I find killing creepers in melee combat is impossible without them blowing up in your face - where-as it's extremely easy in singleplayer survival.