Thanks everyone, here are the steps I took:

1. Got rid of icedtea
2. Downloaded sun's JDK, installed it.
3. Java started working as it should. Applets started working without trouble.

One last question: why did redhat include icedtea if it is not yet complete?

Licensing issues. Fedora is related to one of the big commercial distros (Red Hat) so they have always been very concerned about the legal implications of distributing a piece of software that was illegal to distribute. If you have money in your pockets, you are just more likely to attract the lawyers. Sun has recently made its java open source so who knows, the jdk may be included in the next release. Then again, even the open source JDK is not entirely open source as it contains code that is owned by yet other parties so icedtea is not going to disappear now.

Interesting.