You should not deploy java.exe in a shared environments where multiple trusted users use the same JVM. There are simply to many JVM level vulnerabilities where one user will be able to use the very recent series of JVM level bugs that can inspect the running code of another user, not to mention the problems you mentioned where a user can run Java shells, network sniffers, and other nasties. You only want to do this in the J2EE world where you are protected behind many layers of protections between the user and the JVM. But what you are suggesting is an environment where many users can directly share the same JVM, and even with your security policy restrictions, like you said, I can do some simple OS parameter tampering to get around that. Answer: do not do it. Shared JVM's only belong in the Servlet/J2EE work - and even then, JVM level exploits still get exposed from container endpoints, like we see in JBOSS often.
