Finally resolved this error by getting an updated version of the jar included in the 0.3.1 release. The one included in that package is broken and you can either use an old version from 0.3.0 or use the new version James has compiled at this link:
https://groups.google.com/a/webmproject.org/forum/#!topic/webp-discuss/4nNFdaE2GXI
To summarise:
This uses a slightly modified version of the 0.3.1 source tree. The libwebp.jar file wasn't working for that tree and we had to make some small modifications to the Android.mk files. Do the following changes to the files in the 0.3.1 release and grab the new libwebp.jar.
Add to Android.mk:
swig/libwebp_java_wrap.c \
-include $(BUILD_STATIC_LIBRARY)
+include $(BUILD_SHARED_LIBRARY)
LOCAL_ARM_MODE := arm
Application.mk should contain:
APP_ABI := armeabi armeabi-v7a
APP_OPTIM := release