I think I found what the issue is.
It is related to Solaris 10 OS patch level (http://sunsolve.sun.com/search/document.do?assetkey=1-21-141444-09-1), in the servers where the java 5 and 6 worked, the following files where patched.
 
/etc/security/device_policy
/etc/security/exec_attr
...
/usr/lib/security/pkcs11_kernel.so.1
/usr/lib/security/pkcs11_softtoken.so.1
/usr/lib/security/pkcs11_softtoken_extra.so.1
/usr/lib/security/sparcv9/pkcs11_kernel.so.1
/usr/lib/security/sparcv9/pkcs11_softtoken.so.1
/usr/lib/security/sparcv9/pkcs11_softtoken_extra.so.1

Since my java application is using PKCS11 I'm guessing this is related. Now I need to patch the non-working servers to this level and see if it solve my issue.
 
Thanks
-Ofir