Political issues did not kill the project. Some people are still posting patches, but it surely slowed down involvement.
Is JXSE 2.7 stable enough for
production use?
Yes, some companies are even using the 2.6 branch.
Will jXSE/JXTA for java still be
developed?
Some people are posting patches on the 2.6.x branch and these will be re-integrated in trunk somewhere down the road. The future of JXTA depends on voluntary contributions.
is Chaupal the continuation of JXSE
(does it start from the 2.7 codebase?)
Yes and no. No, it does start from the 2.7 codebase, it starts from scratch. Yes, it is a continuation 'in spirit' of the development of an open source java based P2P library.
when is Chaupal 1.0 set for release?
(approximation i guess)
No plan for a date. We are working on our spare time. So it is not fast.
how similar will Chaupal interfaces be with JXSE (how easy will it be to migrate to)
Chaupal aims at being simpler and more straight forward. One of the weaknesses of JXTA was its complicated API. We want to solve this issue. We also want to focus more on communication between peers and drop the service loading features of JXTA.
Update (August 2013): You thought JXTA/JXSE was dead? Well someone worked further on it and developed a DZone tutorial (unfortunately, SO does not allow links to Dzone, so Google: JXSE and Equinox Tutorial).