FULL PRODUCT VERSION :
java version "1.6.0_26"
Java(TM) SE Runtime Environment (build 1.6.0_26-b03)
Java HotSpot(TM) Client VM (build 20.1-b02, mixed mode, sharing)

ADDITIONAL OS VERSION INFORMATION :
Appears to apply to all Windows versions, but confirmed on:
Microsoft Windows XP [Version 5.1.2600]
Microsoft Windows [Version 6.1.7600]

EXTRA RELEVANT SYSTEM CONFIGURATION :
The c:\progra~1\Java\jre6\lib\security\java.security file was locally modified on these systems intentionally.

If you set networkaddress.cache.ttl=60 to support networks in which host names change IP addresses frequently, this is the recommended file to modify.

This error is unrelated to the specific modification -- it appears for any modification of that file. Comments in the file indicate that it is meant to be modifiable.

A DESCRIPTION OF THE PROBLEM :
Starting from a Java 6u25 system with a locally modified "java.security" file, attempt to upgrade to Java 6u26.

The upgrade causes the following warning dialog:

Warning - Java(TM) Update
(!) lib\security\java.security: Old File not found. However, a file of the same name was found. No update done since file contents do not match.
[ OK ]

Attempts to continue result in a broken Java installation. Symptoms of breakage include web browser crashes when applets are loaded.


REGRESSION. Last worked in version 6

STEPS TO FOLLOW TO REPRODUCE THE PROBLEM :
1. Start from a clean Java 6u25 JRE installation on Windows XP or Windows 7.

2. Edit the C:\progra~1\Java\jre6\lib\security\java.security file, and make any change.

3. Navigate to http://java.com/ and click the "Free Java Download" button, then the "Agree and Install" button to begin installation of Java 6u26.

4. During the normal install process the installer will produce a badly worded warning dialog containing the text: "lib\security\java.security: Old File not found. However, a file of the same name was found. No update done since file contents do not match." [OK]
Click OK to proceed.

5. Observe that an Error dialog now appears:
Error - Java(TM) Update
Java(TM) Update fails to apply changes to your system. [OK]
Click "OK."

6. A windows InstallShield error dialog appears:
Java Setup
Error 1722. There is a problem with this Windows Installer package. A program run as part of the setup did not finish as expected. Contact your support personnel or package vendor. [OK]
Click "OK."

7. The Java Setup wizard shows an "Installation Failed" screen with this text:
Installation Failed
The wizard was interrupted before Java(TM) 6 Update 26 could be completely installed. To complete installation at another time, please run setup again. Click "OK" to exit the wizard. [ x ] Open Java Help. [OK]
Click "OK."

8. At this point, the java installation is broken. Web browsers will crash when loading applets. Luckily, the Windows uninstall process cleans up the mess, after which a clean installation can be done.


EXPECTED VERSUS ACTUAL BEHAVIOR :
EXPECTED -
I expect that upgrades will complete successfully, even if the java.security file has been locally modified.
ACTUAL -
The installer produces badly worded warning and error dialogs, and fails to upgrade Java.

ERROR MESSAGES/STACK TRACES THAT OCCUR :
Error text included in Steps to Reproduce, above.

REPRODUCIBILITY :
This bug can be reproduced always.

CUSTOMER SUBMITTED WORKAROUND :
Uninstall Java using the Add/Remove Programs feature of Windows XP, or the equivalent in Windows 7.

Then, re-install, and modify security.properties after installation of 6u26 succeeds.