Adding the following key to the registry fixes the problem:
Both JNLP and regular applets work with the above key in the registry.
Example of html page containing a JNLP applet:
<param name= WIDTH value = 800>
<param name= HEIGHT value = 300>
<param name="jnlp_href" value="test.jnlp">
<param name="draggable" value="true">
Example of html page containing a regular applet:
<param name = WIDTH value = 500>
<param name = HEIGHT value = 500 >
<PARAM NAME = CODE VALUE = "Clock.class" >
The only thing which isn't working correctly is for a JNLP applet, the width and the height parameters are not being processed by the Java Plug-in correctly. Currently, the default width and height of 192 is being used regardless of the ones specified in the html page when the "application/x-java-applet" MIME type is specified.