I have this same exact issue. For some reason, XCode doesn't work with the current 1.7 configuration when trying to upload a binary. I've tried applying solutions found on java.com, apple, and stack overflow.
java version "1.7.0_04"
Java(TM) SE Runtime Environment (build 1.7.0_04-b21)
An Error occurred uploading to the iTunes store. (then:
Java 1.5, 1.6, or 1.7 is required. Currently, java is the default java version. Please upgrade.)
I'm not sure if this is Oracle or Apple's fault, but people need to be more careful when shipping production code that affects so many other people!
It seems I was able to resolve this with the information on the following page:
I wish I could understand the intracacies of java, because this was a real pain in the neck to resolve. Hope that page helps someone out there save an hour or two of their time.