The problem is probably in Java 1.4 rt.jar file. It probably includes the same java classes that the applet was built with but different versions of them. Apparently this is a MAJOR issue with 1.4. Anyway, if you are using IE, you can go to Tools, Internet Options, Advanced Tab. Uncheck the Sun JRE 1.4 for Applets box. Exit all copies of IE and restart IE. It will work because IE will fall back to JRE 1.2 that was included with IE.
Baron,
I'm pretty sure that you are misinformed about the HTTP tunnelling. The problem is probably that the chat applet uses some .class that was not included in java 1.3 but is now included in java 1.4 (rt.jar). Somehow, don't ask me how to do it from an applet, the .class that the the chat applet distributes has to be loaded before the same class in the rt.jar file. (The class path has to be modified to include the applet's class before the one in rt.jar). Hope this helps.
Mike