Well, I haven't fixed this yet, but discovered run.bat is no longer included in the IDE directory, but had been up until IDE v.0016 or so, where it reads as follows:
REM --- if you're running out of memory, change the 128m
REM --- (which means 128 megabytes) to something higher.
if %JAVA_HOME% == "" GOTO Error
REM start javaw -ms128m -mx128m processing.app.Base
echo *** Error: cannot execute Arduino
echo *** Reason: lacking the directory where to find Java in your computer
echo *** Fix: Edit run.bat and add the JAVA_HOME directory
echo *** at the 'set JAVA_HOME=""' line
echo *** then call the batch file run.bat in order to execute Arduino
I did try moving this into the IDE directory and executing, and got the following error msg:
Exception in thread "main" java.lang.NoClassDefFoundError: processing/core/PApplet
Caused by: java.lang.ClassNotFoundException: processing.core.PApplet
In any case, it looks like the main java install on my machine hasn't been updated since 24 Jan 2014, so recent any java update is probably not the problem.
Still scratching the head. What a mess.