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After some more tinkering, I have finally figured it out.
For those that are attempting to package it, here's the answer:
This key actually still works and seems to be the only way to hide the tray in Java 7:
Java now stores the user preferences in a file per user basis here:
C:\Documents and Settings\%USER NAME%\Application Data\Sun\Java\Deployment\deployment.properties
Simply adding an active setup into the transform of the MST to delete that file does the trick. Java in itself will re-create it.
The reason why you might want to do that is simply because the file is left behind from previous installs, and will keep all previous preferences (in my case, my tray icon was left to on, and no matter what registry key I changed, it would stay on until I delete the file and let Java recreate it using my default deployment settings).
Hopefully someone else packaging Java for deployment can find this info useful. :)
Thanks for posting the solution!
I've been successful in hiding the icon via this registry key