i had a different problem at that time, posted here
https://coderanch.com/t/160855/java-EJB-SCBCD/certification/error-compiling-ejb-first-time my problem more on compiling....
as for your problem, maybe try setting the environment variables as instructed somewhere, i believe either in hf book or in the j2se's installation instructions(in same webpage where u downloaded the j2se)
my env variables for j2ee_home and java_home at that time are
java_home=c:\j2sdk1.4.2_08
j2ee_home=c:\j2sdkee1.3.1
for PATH, i had
PATH=C:\WINDOWS\system32;C:\WINDOWS;C:\WINDOWS\System32\Wbem;c:\j2sdk1.4.2_08\bin
and i added j2ee.jar to this PATH