Yes as Norman has said the variable needs to be set to the dir that contains 
the bin not the bin folder itself.

However you are going to have to drop down the JDK versions, JDK 1.5 is not 
supported till JBoss 3.2.6.

I have never worked with 3.0.2 it may work with JDK 1.4 but it may even need 
1.3.

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