Problems installing Java 7 update 17
The problem is that you have two Java Runtime Environments (JREs) installed on your system, Apple's 1.6.x and Oracle's 1.7.x. As evidenced by running java -version JRE 1.6 is the default JRE on your system.  You likely want to change the default JRE to Oracle's 1.7 JRE.  

You are correct in that there used to be a System Preference for setting the default JRE. Apple removed that as part of the Java Mac OS X 2012-006 update. The new way for selecting the default JRE is to use the /usr/libexec/java_home command. Read the java_home man page as well as the Determining the Default Version of the JDK section of this Oracle page for more info on how to specify the default JRE.