Hi Martin
We just got a resolution. We have java 1.6 and 1.7 is required for the latest update on the HCI tools. The HCI team will update the documentation to ensure this is clear.
In http://scn.sap.com/docs/DOC-28325 in FAQ # 8, it says Java 7 is default but most tools works on Java 6. However, for the latest update of HCI, Java 7 is required - this scn document will be updated soon.
Thanks to Arpit Goyal and Bhuvan Mehta for working on this to help us figure out the issue!
-ginger