Hi!
Brion, Tim: does this have >0 chance of getting into the Wikimedia wikis?
Nobody asked me, but I'll still intervene with my defeatist denials.
The main problem here is that RSS immediately changes access patterns, so people instead of clicking 'watchlist' when they need it, would do that periodically. Though we could try increasing indexing efficiency for the task (and we already run a dedicated database server for it), RSS refreshes would be pain to handle, and may require serious data rearchitecting.
So, the question is, do we really need it? ;-) (I know I'll be scolded for this evil attitude, but by limiting watchlist usage in some ways we actually removed huge bottlenecks in past).
I for one really welcome any external service, using IRC feeds and putting them into 'my personal watchlist rss' service.
BR,