Are you logged on as administrator when you install the SDK? If not, the installer probably tried to change some environment variables and didn't have permissions.
Oh, and the .java files should be in the same directory as java and javac right? (/bin)
Not really. In fact, it's better you have them on a separate directory altogether. You need to add the /bin directory of the SDK to the path environment variable of your computer, then you'll be able to run javac and java from any directory (including the directory where you store your project's source files).