You don't have to set the classpath to the JDK folders. The java command knows where they are.
Are you setting the variables in a batch file or in the whole system?
Open a commmand prompt and enter:
Copy and paste the full contents here so we can see what you have set.
Here is my settings:
Microsoft Windows XP [Version 5.1.2600]
(C) Copyright 1985-2001 Microsoft Corp.
I changed the PATH in Environmental Variables as suggested by peter and removed the CLASSPATH but now it is saying "javac is not recognized as an internal or external command, operable program or batch file."