Nice to hear someone else is experiencing a similar problem.
I have bee digging into this for a few days now and noticed the javaw.exe crashes once it memory hits 270 MB in size.
I have tried to increase the memory of javaw.exe using the below command line, but this did not work.
javaw.exe �??Xms256m �??Xmx1024m
I am at a loss of what to do right now so I have opened a ticket with ESRI, but I think its going to be a while until it's solved.
Drew