As I understand it, you will have a custom JRE installation on your system, that only consists of the parts that are needed to run your application.Apparently I'm not the only one who thought it would be this way. This morning on my way to work, I listened to the Java Posse and they talked about exactly this topic. The guys attended a Sun press conference, were things were clarified. It looks like you install a minimal JRE, which doesn't include stuff like MIDI or CORBA. However, there will be a background thread which downloads those missing packages so that eventually you will end up with a full fledged JRE on your system. The Posse assumes and I hope they are right on this, that it's only a short term solution and there will be a true modular JRE int the long haul.
After a little research I found a blog post by Ethan Nicholas, which confirms that every missing piece of the JRE is downloaded, whether requested or not.
I was hoping you could have a custom JRE, where parts are only downloaded once they are needed. For instance if your application wants to play MIDI files, you have to wait until that module was downloaded. I think that should be the way to go for future releases of the Java Kernel. The Posse thinks there might be a way to disable the background thread, that downloads additional modules. I think it should be turned off by default. If you are a "power user" and need a full JRE, then you probably don't use the consumer version anyways.