Now that finally have LW running, should I update to the newest Java? I don't want to cause any problems that may put me back where i was before! Anyone have any insight to this?

Now that I have my Limewire working, is there a reason for me to update my java and causing a new round of connection problems?

I am guessing you are meaning Java 1.7? Personal choice, but it should not cause connection problems as long as you are aware of the issues.
You will need to create a shortcut to the LW java file for it to run under Java 7 (there is an installer available for this.) http://www.gnutellaforums.com/connec...tml#post368755
If you choose to install 64-bit Java, always install/update the 32-bit Java 7 last. Otherwise you will go through the set-up questions again and LW will have moved the settings folder somewhere else and you will not be able to connect.
Not sure if it should need to be done with every Java installation, but right-clicking the Java installer and choosing run as admin. should be done. This does seem to affect LW's ability to connect.

Argh! LPE stopped working again with the Java 7u40 update. As before, I've tried uninstalling and reinstalling everything and changing the installation order, but none of it has gotten things working. Until someone here has a better idea, I'm going back to 7u25. (And if my luck holds, that won't work anymore, either. )

BTW, anyone know how I can make hard links (not just shortcuts) from <~\.limewire> to <~\AppData\Roaming\LimeWire> and <~\LimeWire> to <~\Downloads\LimeWire>?

Depends on which operating system you're using. For windows 7 type %appdata% into the start menu search box. Then right-click the LimeWire folder and send shortcut to desktop. I did this with all my Windows versions. For Win XP and presumablly Vista & earlier: Click on Start > click on Run > type %appdata% into the text field > ok
Oops hard links? I misread your post.

On Windows 7 you can drag & drop the folder into Favorites. Not sure if this kind of thing is what you wanted. I have downloads in favorites. I presume you're still using Win 7.

I haven't tried the new java update yet, will see what happens.

Oh remember if you have a 64-bit computer to install the 32-bit java last during updates.

Edit: I just updated to java 7u40 using the Offline 32-bit java and LW 5.3.6 opened and connected fine. Despite not using this particular LW for about 2 months.