You're probably right... at the very least, they should re-brand the applet container because it does create massive amounts of FUD.
As others have noted this is really a Windows issue, not an inherent flaw in Java. And as you note it seems to be a problem in the applet plugin, not necessarily the standalone J2SE runtime. It should be possible/obvious/necessary to install the two separately on Windows.
With the advent of things like NaCl, Emscripten, and WebAssembly these things should not be necessary anymore. Undoubtedly these new technologies will be able to properly sandbox untrusted obfuscated compiled code perfectly and should immediately supplant things like applets.
As others have noted this is really a Windows issue, not an inherent flaw in Java. And as you note it seems to be a problem in the applet plugin, not necessarily the standalone J2SE runtime. It should be possible/obvious/necessary to install the two separately on Windows.
With the advent of things like NaCl, Emscripten, and WebAssembly these things should not be necessary anymore. Undoubtedly these new technologies will be able to properly sandbox untrusted obfuscated compiled code perfectly and should immediately supplant things like applets.