While I'd love to agree with Steven, I'm afraid I don't. Now... I think Groovy has the potential to be very very popular on the JVM and I think it is a wonderful way to work. Python didn't replace C. From Steven's own article:
Groovy is the dream child of James Strachan, extravagant open-source developer and visionary. While waiting for a delayed flight he was playing with Python and found it such a cool language that he decided the JVM needed to have a language like this too.
No matter what programming language popularity chart you like to stare at and hit reload on in the middle of the night the top two languages today are Java and C not C++ but good old C. That means that even when some programmers could choose from Python, Perl, PHP, Ruby, Haskel, or a whole bevy of languages the still choose C. So I think we'll see the same on the JVM. Many programmers will have the chance to adopt other tools other than Java but the majority will probably choose to stay with Java.
This is a bit of a warning to Sun. C hasn't had new features in a while. Maybe Java shouldn't get new features so fast either? Creating new languages to support new features seems like a really good move to me.
I really like Groovy a lot and I sincerely hope Groovy makes it into the top 10 programming languages in the world in the next few years but I don't think Groovy will supplant Java in the near term. I can see a time when nearly all Java testing is done in Groovy and much web development. But, even when Grails gets "serious" they use Java.
I also don't buy the analogy of "Java is assembly to Groovy" argument. I think Groovy is to Java as Python is to C. This is a big deal on the JVM since scripting on the JVM has been very hard to do. I remember a long time ago there was talk of porting Perl to the JVM and that never really materialized. There is serious work today on Ruby for the JVM and that work seems to have legs.
The idea for multi-language VM is a very good idea. I also think it's counter productive to speculate on who will trump who for popularity. So far I've only seen this cause problems for people and create unnecessary friction. Soon there will be a very big swelling of Groovy support in niches where performance is trumped by developer productivity but where performance still holds sway over productivity and code output Java still reigns.