It's resource hog because initially it was poorly coded and all optimizations done since first release can't help much. It's true that Java sux for making games, but you can't blame virtual machine for everything. As I've already told to chadz once, Notch is brilliant game designer because he knows to make a game people want to play and knows how to sell it. But as programmer he is average at best.
And there really isn't that much shit going on in Minecraft, initially there was 256x256x64 blocks and it ran like shit. Right now game supports bigger maps, but at first reason why game was running slow is because he didn't optimize shit. There's so many algorithms that you can use to optimize voxel worlds, I don't think he used any of them at first. And I'm pretty sure he wasn't the one who did all the optimization to game engine.
Minecraft is intensive in its use of memory, creating and deleting millions of objects all the time. And that is exactly the kind of things Java isn't great at doing, because it takes control of these operations away from the developper (as that's not the point of Java anyway). Also Minecraft's implementation, from all the things I've seen and read, is pretty straightforward and as usual the simple implementation isn't the most efficient one. A simple programming style has many very valuable advantages though.
It isn't
too simple either. The whole world isn't generated when you start a game and unless as a player you insist on exploring as much as possible, it will never be (I doubt that is even humanely possible, I don't want to do the math either). If it was, you would need a gigantic hard drive to run the game. The most simple optimization was only rendering a certain number of chunks around the player. The maximum size of the world has no influence on the overall performance right now.
Now say if somehow they managed to implement an algorithm that could also reduce the number of blocks the program has to load and render vertically (like say, only 3 layers under the visible blocks for chunks that are far away from the player), they could probably have a
much larger view distance, probably even similar to a realistic view distance on earth (that is, if the minecraft world wasn't flat).
