Actually, there should not be any JAVA.EXE or JAVAW.EXE file in the Windows\system32 folder for Java to run properly.
Java can be installed clenly in its own path.
The Java installer installs it in the bin subfolder of the Java install directory, and inserts a reference to your %JAVA_HOME%\bin folder in the system environment...
If you have Java partly installed in Windows\system, you were previously using another software that installed it incorrectly.
You should delete all the Java packages you hae on your system, cleanup the Software\JavaSoft registry keys in HKEY_LOCAL_MACHINE and HKEY_CURRENT_USER.
Then reinstall java cleanly. All softwares will use the correct setting for the Java VM (including IE6).
When I upgraded XP with SP1, I did not experiment any problem, and the Sun Java VM was still working.
There is no reason why JAVA.EXE or JAVAW.EXE be located in windows folders, where Microsoft rules the game and installs its own deprecated and incompatible VM for Java 1.1.3...