The way I understand it, is that they decided that thanks to erasure it would be messy to go the way of 'function types', e.g. delegates in C# and they only could use lambda expressions, which is just a simplification of single abstract method class syntax.
Delegates in C#:
public delegate void DoSomethingDelegate(Object param1, Object param2);
...
//now assign some method to the function type variable (delegate)
DoSomethingDelegate f = DoSomething;
f(new Object(), new Object());
(another sample here
http://geekswithblogs.net/joycsharp/archive/2008/02/15/simple-c-delegate-sample.aspx)
One argument they put forward in Project Lambda docs:
Generic types are erased, which would expose additional places where
developers are exposed to erasure. For example, it would not be
possible to overload methods m(T->U) and m(X->Y), which would be
confusing.
section 2 in:
http://cr.openjdk.java.net/~briangoetz/lambda/lambda-state-3.html
(The final lambda expressions syntax will be a bit different from the above document:
http://mail.openjdk.java.net/pipermail/lambda-dev/2011-September/003936.html)
(x, y) => { System.out.printf("%d + %d = %d%n", x, y, x+y); }
All in all, my best understanding is that only a part of syntax stuff that could, actually will be used.
What Neal Gafter most likely meant was that not being able to use delegates will make standard APIs more difficult to adjust to functional style, rather than that javac/JVM update would be more difficult to be done.
If someone understands this better than me, I will be happy to read his account.