Eclipse not detecting the installed java

You can specify the exact jvm you want to use through:

• a -vm argument
• directly within the eclipse.ini

Once started, you can reference as many JVM you need in the Installed JRE preference panel

alt text http://img168.imageshack.us/img168/3307/eclipseinstalledjre2.png

Finally, you need to reference the JVM you need in the Libraries tab, in your Java Build Path properties of your Java project (as mentioned by Steve in his answer):

alt text http://img52.imageshack.us/img52/5947/eclipseinstalledjre3.png

It seems, that your project doesn't have the JVM in it's Build Path.

Right-Click on your project. Choose Build Path --> Add Libraries.... Take JRE System Library and choose a JVM for your project.