Few of my friends too had the same issue of showing JAVA error while running Storytelling Alice. He searched all over the internet and this forum and got the solution. It was because of two reasons. One is that he was using an older version of Alice. Second was that he was having an invalid configuration. The first has been cleared by installing Alice 2.2 and the later is cleared by deleting folder in C:\Documents and Settings\<username> and replacing all Alice files in program files. Does alice have
microsoft crm based support. Then the issue is get fixed and it is now running without any JAVA error.