Problems in windows 7

Hi

Try and I know you have updated java but try this as you may have old versions of java still on your PC as the older installers never rolled up to the new version and removed the old.

Download run this tool called JavaRA to remove old Java versions, run it as Admin, so Right Click the shortcut/exe and choose Run as Administrator.

Then run CCleaner and its Cleaner and Registry tool (run the registry one until nothing shows for removal, do save the registry when it prompts you).

Then install latest Java HERE

If you have Windows 7 x64 then grab the x64 version from the same download page as the link is direct to the x86 version, but the x64 is linked on the page.

Can you not turn on Aero?
Try the inbuilt fixit and just type into the Start Search box aero and then choose Find and fix problems with transparency and other visual effects and follow the prompts, do tell us any, messages it says.

Is your Windows 7 fully upto date?

As I dont know minecraft at all, does that java window popup when opened from a browser window link? if so then try with IE or Firefox over Chrome.

I know this may not look great on screen but try booting into Safe Mode (F8 at boot and choose Safe Mode with Networking) and see if the text is still blurry.