Does anyone know why the latest Java upgrade(OS X 2012-006) removes the Java Preferences app in Appllication-> Utilities folder?

Because Apple doesn't want to deal with Java anymore? Java is now Oracle's problem. All of the future security exploits (and there will be some), will be on Oracle's dime.

So if I understand this, Apple has removed their Java and the preference pane, and we must now install Oracles Java 7.

http://support.apple.com/kb/HT5493

This support article from Apple discusses this.

No Apple hasn't removed it, you removed it when you installed the Oracle product.

macjack wrote:

No Apple hasn't removed it, you removed it when you installed the Oracle product.

Not true. Apple removed it as part of their own update process, to encourage users to move to the Oracle product.

bispymusic wrote:

http://support.apple.com/kb/HT5493

This support article from Apple disJava dicusses this.

You're confusing the browser plug-in with the JVM.

Apple's update addresses both the JVM and the browser plug-in. Did you read the support article? It very clearly states in there that Apple's update 2012-006 removes the browser plug-in and the preferences utility.