So originally, I was going to make a multiplayer (client/server based) Atari Combat clone. However, for portability and easier distribution, I was thinking of making it into an applet client with the server being on the web server. Is there a way to do this?
Probably a servlet.
Would there be performance issues?
Almost certainly if you try to pass game traffic through it.
If you went peer to peer for game traffic and only used the servlet for matchmaking it woudl likely work.
In order to do peer to peer from a downloaded Java program (applet or webstart) though you will need to sign the code.