For future reference, it looks as though the installer looks for the installed jre (thro sun's installer process) in Windowz, and ignores environment variables. As I have a number of JSDK's installed on my system, somewhow it got confused. Uninstalling all JSDK's and re-installing hte one I wnat to use fixed the problem.
You can also try forcing the installer to run on a particular JVM via the command line:
fuse-esb-188.8.131.52-windows.exe LAX_VM %JAVA_HOME%\jre\bin\java.exe
I just posted this in the release notes too: