Updating to Java 7 won't change anything since the installer version still uses Apple Java 6 until now. Java 7 is used only for the Mac App Store version but even in that case, installing/updating Java 7 on your system won't change anything, because that version of Sweet Home 3D comes with its private copy of Java.
To fix your problem, you should try to increase the max memory the program is allowed to use following instructions in the FAQ. Hope you can handle it...