You don't need to create the preferences folder, that happens automatically. If you're using LW 4.9.34 or later, the default location for the preferences folder is C:\Documents and Settings\your name\Application Data\LimeWire (this folder's hidden by default).

C:\Documents and Settings\your name\.limewire was the location of the preferences folder for LW versions 4.9.33 & older

Try deleting your preferences folder when LW's properly closed. See point 3 below & also point 2 if you've used much older versions of LW in the past.
Fixes for LimeWire

If that doesn't help, reinstall Java & use the JRE offlilne installer for this version. Remove your current Java version before you install this other one!
Java SE Downloads - Previous Release - JDK 5

If you're still stuck then change compatibility (point 5 in the 'fixes' thread).