OS tested: WinXP Pro, WinXP Home
Browser - IE7
JRE - 6u10 b10

Java runtime parameters can't be set neither from deployment.properties no from java control panel.
(At least javaplugin.vm.options, java.ext.dirs, java.library.path)

Steps to reproduse:

1. Install jre1.6.0_10 b10
2. Open Java Control Panel and make sure, that new generation plugin is enabled.
3. In the Java Applet Runtime Settings add some java runtime parameters (for example -XX:PermSize=128m -XX:MaxPermSize=128m or -Djava.ext.dirs=c:/my_dir)
4. Start IE7 browser.
5. Load some applet and open java console.
6. Press s to dump system and deployment properties.
7. Try to find your changes. You will not notice them.

8. Switch to an old plugin.
9. Restart browser.
10. Repeat 5. and 6.
11. You will notice your changes.