Doing this on the server would be too much load (sounds like it'd be way too much load even using existing C code implementations which don't appear to do it in a flexible enough way). And we can't do the highlighting at submit time because people use different code wrapping settings and it'd be a lot to implement caching of the highlighted code (all of that isn't impossible, but it is a whole lot of work).
If you really want it on the server, you should probably buy pair.com a third web server first (we are pushing the current two pretty hard right now).
There is already a client-side implementation. If you want it, use that. If it isn't good enough, improve it.