It looks like perhaps you didn't install the "Google APIs by Google Inc., Android API 7, revision 1" ?  run the Android tool and check under Available Packages.

I forgot that one myself at first -- I had only installed the SDK API 7 and the Android SDK Tools, but not the Google APIs...

d.

Now it says:

Android SDK Tools Revision 7
Project Target: Google APIs
Vendor: Google Inc.
Platform Version: 2.1-update1
API level: 7

------------------
Resolving library dependencies:
------------------
Ordered libraries:
------------------


Importing rules file: toolsantant_rules_r3.xml

BUILD FAILED
C:Uh3DesktopANDROIDandroid-sdk-windows oolsantant_rules_r3.xml:336: Error running javac.exe compiler

Total time: 0 seconds
C:Uh3DesktopANDROIDandroid-sdk-windows oolsantant_rules_r3.xml:336: Error running javac.exe compiler
    at org.apache.tools.ant.taskdefs.compilers.DefaultCompilerAdapter.executeExternalCompile(DefaultCompilerAdapter.java:509)
    at org.apache.tools.ant.taskdefs.compilers.JavacExternal.execute(JavacExternal.java:61)
    at org.apache.tools.ant.taskdefs.Javac.compile(Javac.java:997)
    at org.apache.tools.ant.taskdefs.Javac.execute(Javac.java:820)
    at org.apache.tools.ant.UnknownElement.execute(UnknownElement.java:288)
    at sun.reflect.GeneratedMethodAccessor20.invoke(Unknown Source)
    at sun.reflect.DelegatingMethodAccessorImpl.invoke(DelegatingMethodAccessorImpl.java:25)
    at java.lang.reflect.Method.invoke(Method.java:597)
    at org.apache.tools.ant.dispatch.DispatchUtils.execute(DispatchUtils.java:105)
    at org.apache.tools.ant.Task.perform(Task.java:348)
    at org.apache.tools.ant.taskdefs.Sequential.execute(Sequential.java:62)
    at com.android.ant.IfElseTask.execute(IfElseTask.java:88)
    at org.apache.tools.ant.UnknownElement.execute(UnknownElement.java:288)
    at sun.reflect.GeneratedMethodAccessor20.invoke(Unknown Source)
    at sun.reflect.DelegatingMethodAccessorImpl.invoke(DelegatingMethodAccessorImpl.java:25)
    at java.lang.reflect.Method.invoke(Method.java:597)
    at org.apache.tools.ant.dispatch.DispatchUtils.execute(DispatchUtils.java:105)
    at org.apache.tools.ant.Task.perform(Task.java:348)
    at org.apache.tools.ant.Target.execute(Target.java:357)
    at org.apache.tools.ant.Target.performTasks(Target.java:385)
    at org.apache.tools.ant.Project.executeSortedTargets(Project.java:1329)
    at org.apache.tools.ant.Project.executeTarget(Project.java:1298)
    at processing.app.tools.android.Build.antBuild(Unknown Source)
    at processing.app.tools.android.AndroidMode.runSketchOnDevice(Unknown Source)
    at processing.app.tools.android.AndroidMode.access$600(Unknown Source)
    at processing.app.tools.android.AndroidMode$RunHandler.run(Unknown Source)
    at java.lang.Thread.run(Thread.java:619)
Caused by: java.io.IOException: Cannot run program "javac.exe" (in directory "C:Uh3AppDataLocalTempandroid6598366680228492816.pde"): CreateProcess error=2, The system cannot find the file specified
    at java.lang.ProcessBuilder.start(ProcessBuilder.java:460)
    at java.lang.Runtime.exec(Runtime.java:593)
    at sun.reflect.NativeMethodAccessorImpl.invoke0(Native Method)
    at sun.reflect.NativeMethodAccessorImpl.invoke(NativeMethodAccessorImpl.java:39)
    at sun.reflect.DelegatingMethodAccessorImpl.invoke(DelegatingMethodAccessorImpl.java:25)
    at java.lang.reflect.Method.invoke(Method.java:597)
    at org.apache.tools.ant.taskdefs.Execute$Java13CommandLauncher.exec(Execute.java:828)
    at org.apache.tools.ant.taskdefs.Execute.launch(Execute.java:445)
    at org.apache.tools.ant.taskdefs.Execute.execute(Execute.java:459)
    at org.apache.tools.ant.taskdefs.compilers.DefaultCompilerAdapter.executeExternalCompile(DefaultCompilerAdapter.java:506)
    ... 26 more
Caused by: java.io.IOException: CreateProcess error=2, The system cannot find the file specified
    at java.lang.ProcessImpl.create(Native Method)
    at java.lang.ProcessImpl.<init>(ProcessImpl.java:81)
    at java.lang.ProcessImpl.start(ProcessImpl.java:30)
    at java.lang.ProcessBuilder.start(ProcessBuilder.java:453)
    ... 35 more
--- Nested Exception ---
java.io.IOException: Cannot run program "javac.exe" (in directory "C:Uh3AppDataLocalTempandroid6598366680228492816.pde"): CreateProcess error=2, The system cannot find the file specified
    at java.lang.ProcessBuilder.start(ProcessBuilder.java:460)
    at java.lang.Runtime.exec(Runtime.java:593)
    at sun.reflect.NativeMethodAccessorImpl.invoke0(Native Method)
    at sun.reflect.NativeMethodAccessorImpl.invoke(NativeMethodAccessorImpl.java:39)
    at sun.reflect.DelegatingMethodAccessorImpl.invoke(DelegatingMethodAccessorImpl.java:25)
    at java.lang.reflect.Method.invoke(Method.java:597)
    at org.apache.tools.ant.taskdefs.Execute$Java13CommandLauncher.exec(Execute.java:828)
    at org.apache.tools.ant.taskdefs.Execute.launch(Execute.java:445)
    at org.apache.tools.ant.taskdefs.Execute.execute(Execute.java:459)
    at org.apache.tools.ant.taskdefs.compilers.DefaultCompilerAdapter.executeExternalCompile(DefaultCompilerAdapter.java:506)
    at org.apache.tools.ant.taskdefs.compilers.JavacExternal.execute(JavacExternal.java:61)
    at org.apache.tools.ant.taskdefs.Javac.compile(Javac.java:997)
    at org.apache.tools.ant.taskdefs.Javac.execute(Javac.java:820)
    at org.apache.tools.ant.UnknownElement.execute(UnknownElement.java:288)
    at sun.reflect.GeneratedMethodAccessor20.invoke(Unknown Source)
    at sun.reflect.DelegatingMethodAccessorImpl.invoke(DelegatingMethodAccessorImpl.java:25)
    at java.lang.reflect.Method.invoke(Method.java:597)
    at org.apache.tools.ant.dispatch.DispatchUtils.execute(DispatchUtils.java:105)
    at org.apache.tools.ant.Task.perform(Task.java:348)
    at org.apache.tools.ant.taskdefs.Sequential.execute(Sequential.java:62)
    at com.android.ant.IfElseTask.execute(IfElseTask.java:88)
    at org.apache.tools.ant.UnknownElement.execute(UnknownElement.java:288)
    at sun.reflect.GeneratedMethodAccessor20.invoke(Unknown Source)
    at sun.reflect.DelegatingMethodAccessorImpl.invoke(DelegatingMethodAccessorImpl.java:25)
    at java.lang.reflect.Method.invoke(Method.java:597)
    at org.apache.tools.ant.dispatch.DispatchUtils.execute(DispatchUtils.java:105)
    at org.apache.tools.ant.Task.perform(Task.java:348)
    at org.apache.tools.ant.Target.execute(Target.java:357)
    at org.apache.tools.ant.Target.performTasks(Target.java:385)
    at org.apache.tools.ant.Project.executeSortedTargets(Project.java:1329)
    at org.apache.tools.ant.Project.executeTarget(Project.java:1298)
    at processing.app.tools.android.Build.antBuild(Unknown Source)
    at processing.app.tools.android.AndroidMode.runSketchOnDevice(Unknown Source)
    at processing.app.tools.android.AndroidMode.access$600(Unknown Source)
    at processing.app.tools.android.AndroidMode$RunHandler.run(Unknown Source)
    at java.lang.Thread.run(Thread.java:619)
Caused by: java.io.IOException: CreateProcess error=2, The system cannot find the file specified
    at java.lang.ProcessImpl.create(Native Method)
    at java.lang.ProcessImpl.<init>(ProcessImpl.java:81)
    at java.lang.ProcessImpl.start(ProcessImpl.java:30)
    at java.lang.ProcessBuilder.start(ProcessBuilder.java:453)
    ... 35 more

I think you are missing the location of the JDK's bin folder in the PATH environmental variable.