Thank you guys for your inputs.

Jaikiran, 
the server.log is miles long, but I guess this could be a culprit.
I think I am missing some jar somewhere...

  | ObjectName: jboss.j2ee:service=EJB3,module=MyEjb3.jar
  |   State: FAILED
  |   Reason: java.lang.NoClassDefFoundError: 
org/hibernate/util/DTDEntityResolver
  | 

Ruchi and Ferry:
JBoss 4.0.5 with "JEMS install" supports EJB3, 
since, as mentioned earlier, EJB3Trail.ear is working fine on my server.

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