After spending a couple of days figuring out the drupal module engine, I think I do have a workable version of markdown plugin now ready. It works for me and a few others for now.
Some people have a concern for lock-in into a particular text format. This is because, in drupal, the data is stored in the text format (drupal/textile) and it is processed every time node is viewed. There are good and bad things about this: The good thing being, you are working at a higher level (really?) compared to raw HTML. So all of your modifications will be at that level. The bad thing is the lock-in: i.e. you are commited to markdown or textile format!
There are a couple of ways to counter this. One beauty of markdown is that there exists html2text which converts HTML to text... valid markdown text! But unfortunately
html2txt(markdown(txt)) != txt (it's close but not exact, it can never be)
So maybe we should store the markdown output to the database (instead of text format as now) and run html2txt everytime we want to edit/modify ?
Update: 2005/05/05 Recent versions of drupal already include markdown and textile plugin