This week's book giveaway is in the OCAJP 8 forum. We're giving away four copies of OCA Java SE 8 Programmer I Study Guide and have Edward Finegan & Robert Liguori on-line! See this thread for details.
You are using the JRE (not the JDK) to run your Java program. It looks like the server VM is not included in the JRE, only in the JDK.
Make sure you add C:\Program Files\Java\jdk1.5.0_06\bin to your PATH environment variable instead of C:\Program Files\Java\jre1.5.0_06\bin, so that you're running your program with the JDK instead of the JRE.
If you look in C:\Program Files\Java\jdk1.5.0_06\jre\bin, you'll see that there are two directories (client and server), while the C:\Program Files\Java\jre1.5.0_06\bin just has one directory (client).