So what's happening exactly?

The recommended Java is version 1.5

There is a version 1.6 beta which is improved but LW will only use it if you don't have any other Java versions on your computer. What you could do is use the add/remove control panel to remove all Java versions. Then install Java 1.6 http://java.sun.com/javase/6/download.jsp JRE "Offline" version which is a 15.72 MB download

You may also be interested in trying the LW 4.11.2 beta which has improvements: http://www.limewire.com/english/content/download.shtml
No need to uninstall LW, it will be removed at the beginning of installing of the new version. You might want to delete your LW prefs though. If you do you'll need to reset your firewall settings with manual port forwarding.