what's wrong with the NIOSII IDE?

First, you don't need to have an additional java runtime environment, it comes with Sopc Builder.

Second, you say win2003. Do you mean Windows 2003 SERVER? If so, it isn't officially supported.

But, that said, let's try to figure out what's happening.

It appears that it can't find the java that comes with sopc builder. I also wonder if that means it can't find other things that would cause this failure.

Can you open your .sopcbuilder file that lives under <quartusinstall>/sopc_builder

and check that it looks similar to this (your paths rather than mine?)

sopc_builder = "D:/quartus/sopc_builder";

sopc_cygwin_dir = "D:/quartus/bin/cygwin";

sopc_quartus_dir = "D:/quartus";

Thanks