You're in territory unfamiliar to me so I'm not going to be much help. Just a guess...
PATH=C:\WINDOWS\system32;C:\WINDOWS;C:\WINDOWS\System32\Wbem;C:\Program Files\ATI Technologies\ATI.ACE\Core-Static;C:\Program Files\QuickTime\QTSystem;C:\Program Files\Common Files\DivX Shared;C:\Program Files\Arduino\java\bin
"C:\Program Files\Arduino\java\bin" seems suspicious to me given this from the error report...
VM Arguments:
jvm_args: -Xbootclasspath/a:C:\PROGRA~1\Java\jre6\lib\deploy.jar;C:\PROGRA~1\Java\jre6\lib\javaws.jar;C:\PROGRA~1\Java\jre6\lib\plugin.jar -Xmx32m -Djava.awt.headless=true -Dkernel.background.download=false -Dkernel.download.dialog=false -XX:MaxDirectMemorySize=64m
And this is really suspicious...
Dynamic libraries:
0x00400000 - 0x00424000 C:\Program Files\Arduino\java\bin\javaw.exe
Is Java running from the Arduino folder or the Java folder?
Anyway, after a fresh boot, try renaming "C:\Program Files\Arduino\java" to "C:\Program Files\Arduino\java_deleteme" then test.