Hmm, I had the exact same problem at my college , when they imaged the machines, they forgot to tell windows the correct classpath to find java. This sounds like your problem so here's how to fix it.

*Right-click 'My Computer'
*Select the 'Advanced' tab
*Scroll down to the 'Environment Variables' button
*Now notice the system variables pane...
*Find the vaiable 'path' and hit edit
*Now on the textfield where it says 'variable value' go all the way to the and add the directory location of javac.

This is what mine looked like...
%SystemRoot%\system32;%SystemRoot%;%SystemRoot%\System32\Wbem;C:\j2sdk1.4.0_02\bin
Hit 'ok' and that should work for you. What your doing here is telling the computer where to look basically to compile. It does exactly what is posted above, just a different way. Perhaps slightly more confusing

Note: for this solution I am assuming you are using Windows XP