I would like to use the WatchService API as mentioned in this link: http://download.oracle.com/javase/tutorial/essential/io/notification.html
After reading around, I
It's possible that you still need to add the JDK into Eclipse (STS). Just because the JDK is on the system doesn't mean Eclipse knows where to find it.
Go to Preferences > Java > Installed JREs
If there is not an entry for the 1.7 JDK, add it. You'll have to point Eclipse to where you installed your 1.7 JDK.
If Eclipse can't find a JRE that is 1.7 compatible, I'm guessing that it just uses your default JRE, and that's probably still pointing at Java 1.6, which would be causing your red squiggly lines.