I solved this problem. Ensure that the hsqldb-ds.xml  modifications are placed in the 
directory that is appropriate for the mode you are starting jboss in. THis means that 
you should have this file modified in "JBOSS_HOME\server\default\deploy" if you are 
starting the jboss in default mode. It should be in "JBOSS_HOME\server\all\deploy" 
directory if you are starting all serverice of jboss. If you are just using "run.bat" 
like me then it gets started in default mode.

Good luck.
Sanjay

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