This week's book giveaway is in the OO, Patterns, UML and Refactoring forum. We're giving away four copies of Refactoring for Software Design Smells: Managing Technical Debt and have Girish Suryanarayana, Ganesh Samarthyam & Tushar Sharma on-line! See this thread for details.
I suspect the "Program Files" is the problem - spaces in path names can lead to weird issues like this. Try moving the JDK out of Program Files (I have mine at c:\apps\java\jdk1.6.0_13); you do not have to reinstall, moving or even copying is fine. And then change JAVA_HOME to reflect the new location.