Thanks for the reply Firemansam.
Your response is pretty much the same what Air Asia Online Chat told me.
No visa = I will get denied boarding in Sydney. And no short checking of bags.
Guess my options now (apart from buying a brand new ticket) is to have carry-on luggage only and pay for a Visa letter for Visa On Arrival. I'll just leave after landing at KUL.
I am on an one way ticket anyway, it was $129 SYD-KUL-SGN versus $179 SYD-KUL .... obviously I've paid for luggage which will no longer be used