Interesting. It's GPL/GPL-compatible? Maybe I'll have a look at that
Yes, sure, it was originally created by Magnus on commons and is now maintained by some other people there (mainly Lupo and occasionaly myself)
sometime and merge it into core if it seems suitable. It seems like at least some parts should be server-side: surely it currently needs to retrieve the text of the page, parse it in the client, and resubmit it ?
No. The categories are parsed from the rendered page in "catlinks" (there is a blacklist for license categories). The API is used to suggest categories while typing (very useful).
http://commons.wikimedia.org/wiki/MediaWiki:Gadget-HotCat.js