Found my problem which has left me feeling very red faced.

I put the code from my standalone test class that listed the class heirarchy for com.microsoft.jdbcx.sqlserver.SQLServerDataSource into XAManagedConnectionFactory and compared the results. It turns out l was using a pre v2.2patch1 version which doesnt implement XADataSource on the JBoss server and v2.22 which does implement XADataSource with my test class.

I'll post a followup message to confirm whether the SQLServerDataSource class has made the semantics message go away.

Thanks David and Benjamin.

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