Technically - the JVM used for installs is different then what is used for Un-installs. The "Resolve On Reinstalls" of "Uninstaller JVM Resolution" is only for the Uninstaller JVM. It basically states if there is one there - use that for the uninstall of this install. Hope that's not too confusing.
I think from your question you are creating an Update, not an Upgrade and getting a 'jvm not found error' on installing. There can be a number of reasons for this error. Are you searching for a JVM or are you using a bundled JVM? What platform are you installing on? I know I've had issues on unix/linux systems if the user had something like /usr/bin/java becuse the installer thinks it is the JAVAHOME/bin/java and throws the error because it is looking for JAVAHOME/lib or /usr/lib and does not find the JVM libraries.
Also check if what the env CLASSPATH or JAVAHOME vars are set to, unset them for the install and see if that works.
