I used the Java SDK 1.4.0. You should be fine using the Java JDK 1.3.x.
 
Open your .\core\compile.bat file. And edit it so it looks like this but with the correct paths for JAVA_HOME and ANT_HOME:  
 Code:
 set CLASSPATH=.;lib/collections.jar;lib/xerces.jar;lib/MRJToolkitStubs.jar
set JAVA_HOME=D:\Programme\JavaSDK1.4.0
set ANT_HOME=D:\ant-141
set PATH=%PATH%;%ANT_HOME%\bin
ant
  save it and
open .\gui\compile.bat:  
 Code:
 REM NOTE:  If you are using a local core project, replace lib/core.jar
REM        with ../core
set CLASSPATH=.;lib/collections.jar;..\core;lib/xerces.jar;lib/jl011.jar
set JAVA_HOME=D:\Programme\JavaSDK1.4.0
set ANT_HOME=D:\ant-141
set PATH=%PATH%;%ANT_HOME%\bin
ant
  save it. 
Make sure that in both files the JAVA_HOME folder contains a file called javac.exe! 
alright now do this: 
it should compile now and say build successfull 
It should do something now
now you're in \gui 
it should also say build successfull 
that's it. 
you can run it by run the run.bat script or with this (set the path to javaw): 
D:\Programme\JavaSDK1.4.0\bin\javaw.exe -classpath lib/collections.jar;lib/xerces.jar;lib/jl011.jar;lib;lib/core.jar;RunLime.jar RunLime  
mahalo