if a class is located in a directory whose name contains the '#' character (e.g. c:\javaprogs\test#2) then the java VM will not be able to locate it. The exception java.lang.NoClassDefFoundError is thrown.

This is a regression. JDK 1.1.x version worked OK (tested on 1.1.5, 1.1.7 and 1.1.8), but failed on JDK 1.2.x (tested on 1.2.0, 1.2.1 and 1.2.2). These tests were made under Windows and Solaris