Why is this such a bad idea? (According to many people)
I don't think it's a bad idea. Lots of people use IPython which is a shell written in Python :)
In fact you may want to base your effort around IPython. scipy does this, for example
I've always thought it was quite a cool idea. Last time I got the urge to give it a go I was thinking about a maple-style worksheet interface for Python. Sadly I can't find the very cool Python+GTK+Cairo code for an interactive shell that is out there somewhere, but searching now I did come across a couple of things that might interest you.
Reinteract is very close to what I had in mind.
PyShell is closer to a traditional shell, the source is available and it says on the website that he's seeking help.
Edit: This older question on unix shell written in a reasonable language was a related link and has lots more examples.
Another shell written in Python is hotwire - it has some interesting ideas and a mix of commandline and gui interface. It is written in Python but can let you freely intermix code in sh, python, perl and ruby, plus its own language 'HotWirePipe'.
Unfortunately the main site for it seems to have died, but it is archived in the wayback machine.