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It depends, ITSM is compatible only with Java 1.7 from 7.6.04 sp2 (and above).
Else use 1.6.
Are we strictly talking about ARSystem, MidTIer, Email Engine or all. We are running ARS 7.6.04 SP1 but MidTier 7.6.04 SP2.
In the release note from 7.6.04 sp2:
Support for Oracle Java 7
In Service Pack 2, Oracle® Java® version 7 support has been provided for
BMC Remedy AR System. You can install BMC Remedy AR System 7.6.04 SP2 on the
Java 7 platform.
Basically installation of AR System failed when using 1.7 so everything was bound to fail