It's important that if you install Java 7 64-bit, you also install Java 7 32-bit. Very important you install the 32-bit Java last. Also important to set the Java installers to Run as Administrator. The latter seems to affect LW's ability to connect. The installing of 64-bit java last seems to make LW change its location of settings and download folders, so it would not be reading the new connection file. Installing the 32-bit java last makes it all go back to normal. I hope that did not sound confusing.
Your problem looks like the 64-bit Java issue which is when those pop-up error windows usually occur.

- If you installed 64-bit Java, then install 32-bit java with the installer permissions set to Run as Administrator.

The present version 'offline' 32-bit java installer: jre-7u10-windows-i586.exe,
after downloading, right-click the installer and choose Run as Administrator.

Let us know if this fixed the problem.