You need to go to /Library/Receipts and remove the file called Java142Update2.pkg first, then run the downloaded installer and reboot. Software Update will later prompt you to install Security update 2005-002 (Feb 2005) -- accept it and reboot. You should be just fine after that.
[robg adds: I'm not sure what's causing this issue; I've upgraded three machines here, and all three have Java running just fine without any additional work. However, I have also heard from a number of people, and seen postings on various forums, that Java did break for quite a few users. If that group includes you, here's the fix.]

