To resolve this issue I discovered that manually setting JAVA_EXE along with JAVA_HOME in the ~/.bashrc file fixes the issue.
Like this: (for my java installation on Ubuntu, yours may be different)
export JAVA_HOME=/usr/lib/jvm/java-6-openjdk
export JAVA_EXE=$JAVA_HOME/bin/java
export JAVA_EXE=$JAVA_HOME/bin/java
That's it. Then Railo worked like a charm.
Another wrap!