FWIW
I verified the IDE will work with 1.7.0_07 version of the JRE.
I am running Win7 X64 with 32-bit version of the JRE
I had to rename the java folder under Arduino, so that it would use the installed version instead of the Arduino version.
Here is the launch4j.log:
CmdLine: C:\arduino\arduino-1.0.1\arduino.exe --l4j-debug
WOW64: yes
Working dir: C:\arduino\arduino-1.0.1\.
Bundled JRE: java
Check launcher: C:\arduino\arduino-1.0.1\java\bin\javaw.exe (n/a)
64-bit search: SOFTWARE\JavaSoft\Java Runtime Environment...
32-bit search: SOFTWARE\JavaSoft\Java Runtime Environment...
Match: SOFTWARE\JavaSoft\Java Runtime Environment\1.7
Match: SOFTWARE\JavaSoft\Java Runtime Environment\1.7.0_07
64-bit search: SOFTWARE\JavaSoft\Java Development Kit...
32-bit search: SOFTWARE\JavaSoft\Java Development Kit...
Check launcher: C:\Program Files (x86)\Java\jre7\bin\javaw.exe (OK)
Add classpath: lib\pde.jar
Add classpath: lib\core.jar
Add classpath: lib\jna.jar
Add classpath: lib\ecj.jar
Add classpath: lib\RXTXcomm.jar
Launcher: C:\Program Files (x86)\Java\jre7\bin\javaw.exe
Launcher args: -Xms128m -Xmx128m -classpath "lib;C:\Program Files (x86)\Java\jre7\lib\tools.jar;lib\pde.jar;lib\core.jar;lib\jna.jar;lib\ecj.jar;lib\RXTXcomm.jar" processing.app.Base
Args length: 167/32768 chars
Exit code: 259