I've seen this issue with a few users. Question is, is your Windows XP 32 or 64 bit. You will need 32 or 64 bit Java depending on which version windows you're using. See
http://www.gnutellaforums.com/349419-post8.html; LW will not recognise your Java because it is searching for a version that would be expected to be found on your 32 or 64 bit Windows system.