First I would like to say this is a compilation of a bunch of stuff posted around the net. I used the following to help in building my environment.
App Inventor 2 offline version (Ai2LiveComplete)
Java JDK 1.7.0
Alright so Basically what I did from start to finish:
Download Ai2LiveComplete from here: http://sourceforge.net/projects/ailivecomplete/files/Ai2LiveComplete.zip/download
Extract the zip file to a location you want to use it from.
Then uninstall all of JAVA from your computer.
Then go here: http://www.oracle.com/technetwork/java/javase/downloads/java-archive-downloads-javase7-521261.html and clicked on "JAVA SE DEVELOPMENT KIT 7".
Click "Accept License Agreement", select "jdk-7-windows-i586.exe".
Once installed click on Windows "Orb", bottom left of screen.
Right click on Computer. Select "Properties".
Select "Advanced System Settings".
Select "Environment Variables".
Under "User variables for ___", click on "New...".
Fill in Variable name: JAVA_HOME
Fill in Variable value: C:\Program Files (x86)\Java\jdk1.7.0
Next under "System variables" do the exact same thing.
Next go to the location you put your "Ai2LiveComplete" and open up to Ai2LiveComplete->AIServer->WEB-INF.
Right click on "appengine-web.xml" select EDIT.
Change <property name="build.server.host" value="localhost:9990" />
TO: <property name="build.server.host" value="172.xx.xx.xxx:9990" />.
172.xx.xx.xxx is whatever your IP address is.
Once you are done with this, log off the computer and log back in. This is an easy way to reset things.
Now once your computer is logged back in, open your "Ai2LiveComplete" folder.
Select "WinStartAIServer.cmd" and then "WinStartBuildServerWithHeap.cmd".
Now open up Google Chrome or Firefox and go to "http://localhost:8888/".
At login screen type your email address and check the admin box.
Click "log in" and have fun.