Java mysteriously broke on my work PC after a security patch was pushed out to us, giving this error whenever you tried to run a Java program. Somehow the 'lib' subdirectory of the Java 7 install had vanished! It might have been related to having multiple Java versions installed simultaneously.
If you're getting this error there are basically two things that could be wrong:
1) Your Java installation is broken. If the file/directory it's complaining about doesn't exist, uninstall and reinstall the JRE and then it should be there. This fixed it for me.
2) If the files are there, your PATH is somehow incorrect or pointing at an old/broken Java install. In this case you either need to fix your PATH to point to the correct java.exe/javaw.exe, or use a fully qualified path. So instead of:
java <whatever>
Use
c:\<full path to correct JRE>\bin\java.exe <whatever>
3) If your PATH is correct and files are there and it's still failing, the path could be getting truncated because it is too long. see: Running Java gives "Error: could not open `C:\Program Files\Java\jre6\lib\amd64\jvm.cfg'" .