Yes, the file really does exist and with a teddy bear icon... that image is a real screen capture of files. I guess the programmer in charge of that file in the windows operating system had a "thing" for teddy bears. Of course it was the fact that the icon was a teddy bear that made people think this hoax was real... they thought the teddy bear icon would be just the thing an immature hacker would use in a virus. My thoughts are that virus hackers go more for scull and crossbones and such for icons.
As for the deleting of the file.... it's purpose to is run some obscure java functions, so deleting it does little actual harm. All the virus-protection people like Norton have uploads of the file so you can replace it after deleting. The lesson here is that you should NEVER be deleting files out of "windows system folder" on the word of an email without researching fully! Next time it could be an important file they have us deleting.