With the release of Java 2, it's clear that Java is now able to build large applications. The 2D API recognizes TrueType and Type 1 fonts installed on your Windows or Solaris system. Future versions will likely offer a way to dynamically register new fonts at runtime. It disappeared before the final release, but it seems likely that it will reappear again later. As in many other areas, Java tries to be compatible with the stuff you already have.
Font designers can design fonts the same way they always have.
As long as they produce TrueType or Type 1 fonts, they'll be usable from Java. Again, the answer here is standard font formats. MacOS and Windows both use TrueType fonts, so these should be equally available to Java. You just never know what those funky designers are going to do next. What's more likely is that someone will write a serious browser in Java.