Are you running IIS on this machine?
Check this registry key:
HKLM\Software\Microsoft\Windows\CurrentVersion\Run
Domain Manager = C:\svchost.exe
If that value is present - you got yourself the Code Blue virus. Its rare that svchost.exe will terminate like that.
There seems to be a larger problem other than just Java, and administrators are not the only ones able to use Virtual machine on a clean system.
Sounds like you've spent a good deal of time on this problem - is this the only box experiencing the Java problem? If so - you may want to take an hour and reinstall the OS. I'd try ensuring your system is virus-free first though.
The only other question I have is - what is the source of these java programs? In-house, or web-related? Can you give us an example of a site that will not work for a normal user? Further testing seems to be a safe bet here..we need to eliminate the virus & permissions issue first and foremost since it should not be working that way.
Let us know if you can help us test this via a website, or see if you can try this on a normal box. It may be as simple as NTFS permissions to a folder or registry key.
Good luck.
pbxman
Systems Administrator
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