There is a watch mode in ruby-processing (the sketch updates on save). 

Would be a great GSOC project....

Yes, indeed, would love to see a proposal in this area!

Praxis is a Java-based patcher-style environment (think Isadora, AudioMulch, etc.) that allows you to live-code custom components using the Processing API. At the moment it's a 2D subset (with a few interesting additions) implemented on top of Praxis' own renderer.  It's possible to have multiple components / sketches rendering at the same time.

It's a bit lacking in documentation at the moment - that's coming ASAP.

Really like the Alt-click slider on numbers - might have to 'borrow' that idea.

An exciting concept on similar lines by Chris Granger: Light Table - A new IDE Concept

Very Impressive!

@Manindra29 - that reminds me a little of Field for some reason.  I agree - very impressive!

Hmm.. It's no longer in active development it seems.. Btw, I recently stumbled across this: Live Code Lab. Worth keeping a watch on..

@Manindra29 - what isn't?

just read this article which I found particularly encouraging. you can either read it as a critique of khan academy, or processing (or both), but in the end it's simply a very lucid approach to the potential for learning to program.