"Surely porting Java or improving Replay (ie. adding modern codecs to it) and the like would have been a better use of time."
They did do some work on replay in 1999 - tidying up mainly but there was a frontend added to the multitasking playback. I don't know whether this was ever released since I don't have select. Modern codecs tend to require more processing power than riscpc (and probably omega) has. However there were more modern (for 1999) codecs developed for moviefs (a version of which was meant to be part of replay 3) - but they were never released due to licensing cost problems.