Any idea yet when this will be resolved? I have a similar problem which may be the same. My launcher is set to use:
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Virtual Machine Parameters=-Xmx25:256:1024P
On some machines, usually ones with 4Gb+ of RAM the launcher fails to run with same error as above; even though there may be 3Gb of RAM available.
I thought that maybe this was due to memory fragmentation but, since seeing the above post, maybe not!? In any event, even if there is not enough contiguous memory available; at least when using the Percentage option, I think the launcher should try successively smaller (-32Mb) increments for maximum until successful; or outright failure. Setting the max to 920Mb for example works fine.
As a workaround I will read a custom property off the command line in the installer which will allow the user to specify the max memory if the installation fails the first time round. (There are certain things for which my installation package executes java applications using the native launcher, which upon failing cause the installation to abort and rollback; The rollback is desired!)
Other than that I have so far enjoyed using this product and it totally kicks InstallAnywhere's ASS!