Apparently, the answer is:
the rt.jar that ships with the JDK (where the core Java classes live) is not compiled with full debug information included in the .class files, so the debugger does not have local variable info.
Unfortunately, this is not something that Eclipse can do anything about – all debuggers will have the same problem with JDK core classes.
The release notes of Eclipse 3.4 states:
Missing debug attributes
The debugger requires that class files be compiled with debug attributes if it is to be able to display line numbers and local variables. Quite often, class libraries (for example, “rt.jar”) are compiled without complete debug attributes, and thus local variables and method arguments for those classes are not visible in the debugger.