For starters, you can't just filter out posts by those on your twitlist, but you probably have to filter away all the replies, too.
I disagree with this. Filtering out just the posts by the twitlist is a sufficient measure, although granted it might not be as good a feature as might be envisioned. Obviously it won't filter out replies and quotes from the twit, but it is in itself a good step and probably a lot easier than trying to implement a full-fledged threaded twit handler.