That's a very fuzzy, if not non-existent, distinction. The only real difference is the designers' original intention. Of course the Java VM was originally only destined to exist only in software, but hardware versions do exists [1]. And of course x86 was always destined for hardware, but there's more software implementations of that than can be counted. There's also a third type in the LLVM sense, where the VM is just an intermediate step in compiling from a high level language down to machine code. And that's where the JVM (mostly) falls today.

The VM described in the OP could easily fit in any of the three.

[1] http://www.jopdesign.com/