.......but does detect Java 1.6.26. Although I'm using 64 operating system (Win 7), Java version is 32-bit. Went back to Java 1.6.26 which is detected. With Java 7, the error message from within LO is that a Java runtime can't be found at the specified Java 7 installation folder. Should also mention that Firefox 6 beta5 doesn't detect Java 7 console. Maybe there's some sort of connection.
*** This bug has been marked as a duplicate of bug 39659 ***