I've seen this same issue brought up before, but I can't find a solution. I am using Titanium Developer 1.2.1 (it downloaded but didn't install 1.3?) and I have all of the android sdk files installed. I am using Windows 7 Professional and my JDK is up to date. When I try to start Kitchen Sink it immediately crashes with the error message "Sorry! The application KitchenSink (process com.nolanwright.kitchensink) has stopped unexpectedly. Please try again."
I have tried APIs 2.1 and APIs 1.6.
Here is the output in Titanium developer: http://pastie.org/961766