I have set BoundingBox's on all GameObjects on the server. I am setting there transform with the transform of the players and projectiles movements. But the BoundingBoxes never move. They are allwasy sitting at 0,0,0. Thus when I check for intersects of the bounding boxs it is alway strue for all objects, since the BoundingBox is sitting in the center for all objects.
Unfortunately I don't have a solution for ya. You're doing the right thing. Basically you're building a model of the game on the server and accepting as input the feed from other players and then sending out the world state based on what the servers model looks like.
Not sure however why the bounding primitives aren't moving. This is going to likely be a Java3D thing. Do a quick log of what you're receiving and what you're updating the objects to on the server and see what is resetting the transformation matrix for them and making them stay at the world origin. Sounds like a bug in the world updating code.
But I can say that you are doing exactly what you're supposed to be doing.