When you deleted the preferences folder, did all of your settings within LW's options revert to default?

Try WW's advice here about installing PeerGuardian2 & the hostiles list...see if that helps.
http://www.gnutellaforums.com/291773-post2.html

If none of that helps, you could try reinstalling Java. Try this version, download the offline installer & remove any other Java versions before you install this one.
Archive: Download Java 2 Platform Standard Edition (J2SE) 5.0 Update 11