The Java Control Panel's Temporary Internet Files -> Settings -> Delete Files button chain is supposed to clear out the deployment cache. There are situations where it does not do this properly, and (at least) downloaded Java Web Start extensions which are not being properly updated, likely due to 6607978, are also not being cleared out. The file /home/kbr/bugs/jws_cache_clearing_bug/cache.zip contains the zipped C:/Documents and Settings/[username]/Application Data/Sun/Java/Deployment/cache directory from the affected Windows XP machine.
Clearing out the deployment cache is a measure of last resort which we don't want users to have to do anyway -- the cache implementation is supposed to be correct and robust. The clearing of the cache absolutely has to work correctly.