A true rumour
Hume and Hovell is not a bad link to help on the way.
There is also the existing Australian Bicentennial National Trail (BNT) which links Cooktown in North Queensland to Healesville a 5,330 kilometre multi-use trail (Mountain bike, walking and horses). But as it passes Sydney it does on the far side of the Blue Mountains, Crossing the Six Foot track.
http://www.nationaltrail.com.au/But finally the rumour you probably heard about is a plan to link Sydney’s Coastal Path to the Illawarra Escarpment track then Two Rivers Track where you then head south west to Canberra. Here You can then link into the National Trail’s Alpine towards Melbourne, then fill a bit of a gap to Melbourne. The working title of this northern section is "The Illawarra Way" (Originally Federation track). Mostly on existing tracks/trails, but not officially recognised or signposted - but very walkable. Garry McDougall of the GNW fame is running with this project some info here
http://www.members.optusnet.com.au/utravel/federation.htmlHope that helps, sounds like a great walk but I have not done it.
Matt