XMPP is an IETF standard now (happened last year). Great for building custom applications because it is simply streaming XML. Speaker knew of a company that built server monitoring infrastructure on XMPP (when a server went down, it sent an XMPP message to the appropriate tech).
Jive Messenger is the premier OSS Java Jabber server. Good performance, web-based admin console, just released version 2.2, and integrated with Asterisk -- so they have VoIP integration (closing in on unified messaging).
XMPP client libraries: Smack and JSO. For simplicity and ease of development, Smack is the best. Other libraries have extra bells & whistles.