Paul--

Did you find a resolution to this?  I'm having the exact same problem and modifying the notes.ini file doesn't help.  I *can* via command prompt enter the data directly, run ..\nserver.exe -jc -c and the domino server launches and the server controller runs and is accessible.  However, if I leave -jc-c in the service specification, the service will fail with the exact error you specified.

Also, this is a brand-new box with the correct java version installed by Domino, and nobody else.

Anyone else have any input on the matter?