Under Win7, there are permission issues that you need to be aware of. I have my arduino-1.0.1 installation under the usual Program Files (x86) directory (together with my older installations) and for each I had to grant Administrator permissions before copying them into the folder, and upon the first launch. I never had an issue compiling anything on Win7.
Well it works on my Windows 7 64-bit version, so it does work, could be some problem with your configuration.
I do get a lot of slightly dodgy behaviour with mine, I can't start the IDE from the windows startup menu but I can start it if I go to the directory it is in, and double click the exe file.
Windows also seems to get confused sometimes about the multiple instances of Java on the computer.
I would check that the arduino library which you are trying to compile is in the right place.