"...I can't work out what has changed" - M$ broke it!
I'm not surprised that there is a problem. Tho' paying lip service to continued "support" of Java, M$ has no incentive to make their JVM actually work properly or install smoothly.
The idea is that if enough WWW users (most of whom will be using IE5/6) have problems reading pages with Java code on them then pretty soon site developers will stop using Javascript. Byebye Java and byebye the threat of a cross-platform language. Welcome to the M$ .NET world and don't bother looking for the exit, there isn't one.
The Sun JVM in fact works pretty well most of the time (unless the website is using very nonstandard java [i.e. M$ j-script]), so you could try installing that.