Steps to reproduce:

Install jre-1_5_0_06-fcs-bin-b05-windows-p-11_jan_2006.exe from
/net/jqa-store.ireland/export/home2/jdk/1.5.0_06/plus/b02/bundles

Update to jre-1_5_0_07 by using the bundles staged locally on latte.ireland.sun.com
To do this create the following registry key -

HKEY_LOCAL_MACHINE\Software\JavaSoft\Java Update\Policy\UpdateServletURL
and give this the value of: http://latte.ireland/update/1.5.0/map-1.5.0_07.xml

NB: When 5.0_u7 is promoted it will be located here:
/net/jqa-store.ireland/export/home2/jdk/1.5.0_07

Open the Java Control Panel, select Update tab and Update Now.
JRE 1.5.0_07 will be downloaded and the user prompted to install.
We currently have access to the nightly build only.

Now uninstall 5.0_u6. The registry is updated and the JRE directory for 5.0_u6 is removed

Open the Java Control Panel and select Java, view Java Applet Runtime Settings. JRE 5.0_u6 is still there and referencing a directory that doesnt exist.
I have also tried updating from 5.0_u5 JRE to 5.0_u7 JRE and then uninstalling 5.0_u5. The uninstalled JRE is removed from the Java Control Panel as expected. This seems to be a issue with 5.0_u6 onwards.