Java applications have been proven(not always) to run just as quickly and smoothly as applications written in languages like c, c++, etc. See this reference, check out the PDFs. Many people say that java and the vm is slow without actually much proof or details - and this reference goes into some detail
Java is a widely known language and it's easy to pick up. putting the android sdk and tools in the hands of all these people who know Java already allows the android market to have a great potential of supplying its users with a large quantity of applications.
disclaimer: i'm no expert on this matter, just my 2 cents
