> ... with an even more Java-like syntax
I think you have your answer right there.
The other reason is that nobody likes the idea of having a language which compiles to Java source code.
Why not? It seems like a good thing if there is a possibility that you might have to go back to Java (if that make sense) or if some time down the road it is simpler for maintainers to go over to Java by reading the compiler output rather than dealing with xtend, if they don't know it. It could also be great if you want to quickly know what the equivalent of what you are writing in xtend is in java - just compile it. That seems more interactive than having to google or look up on StackOverflow.
Of course this assumes that the compiler output is actually readable.
The only hitch is that the Xtend is still very much a work in progress. It doesn't support inner classes and anonymous classes!
That said, I never figured out why Xtend (http://www.eclipse.org/xtend/) never caught on, and it delivered most of what Kotlin is now offering, but with an even more Java-like syntax right out-of-the-box. Since Kotlin and Xtend are very, very similar, I suspect that Kotlin's ability to genuinely succeed will be mostly based on JetBrains' popularity how strongly they push it.