LW will only use Java 1.6 if no other versions of Java are on your system. So you'd need to remove the earlier versions.

You've got me stumped. I'm not sure what the problem is.

When you deleted the preferences folder, did you look for the hidden folder called Application Data? It can only be found if you turn on 'show hidden files & folders' before searching for limewire.

For windows 98 the earlier versions of LW the LW prefs were found here: Your .limewire folder is in "C:\My Documents"
I'm not sure about now. The new prefs folder is normally found in application data folder.