I'm almost certain it does. I don't have access to a WSAD 5 installation to check right now but I am using RAD 6.0 with JDK 1.4. After installing the actual JDK, options you may need to set in eclipse/WSAD/RAD include:
1) Installed JREs 2) Java Compiler Compliance Level 3) J2EE Version (if using J2EE)
Note that you may also set Java Compiler properties for individual projects but I have never had any reason to do so.