I have some experience with speech-to-text and decided to look into this for my G1 a few months ago. As of now most of the good speech APIs are written in C++, which can't be run on Android (to my knowledge). There are Java implementations out there but they all are based on Java SE6. A specific speech API would have to be developed (ported) to run properly on Android, but I have a feeling it will take up a decent chunk of memory.
It's definitely possible, and many speech-to-text apps out there are fairly accurate. Given a decent setting without too much background noise they will give accurate results, and with some tweaking could work well on a cell phone too. Haven't used Samsung's voicemode yet, but if it made it into production it probably isn't too terribly inaccurate.

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