We've pondered this for a long time. We did develop a pretty capable (if not particularly pretty) java client complete with triggers, macros, and so on, but we definitely want to get a dedicated Windows client at some point. Have you ever seen Simutronics' E-scape client? It's beautiful.
To me, there are two major advantages to having a good, dedicated client.
1. You can make it very pretty. Some may scoff at this but pretty attracts players.
2. You can provide it to your players for free. If someone's never played a mud before you have to either have a java client or ask them to download (and possibly pay for) third party software to access your mud. A better experience (especially for newbies who need handholding) can be provided by controlling the client-side as well as the server-side. Otherwise, players may be stuck with the average POS java client or windows telnet *shudder*.
Of course, as you say, the downsides are that developing a client that is truly useable without sacrificing the functionality of a client like Zmud is not going to be easy. We've not done it so far mainly because it's going to cost so much to do well.
--matt
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