Analyzing thread stack traces indeed proved useful. Thanks for your help. I 
looked at http-0.0.0.0-# threads and most of them were in WAIT/BLOCKED state. 
All these threads seem to be waiting for JDBC connection. Basically it seems 
that they are waiting on 
org.jboss.resource.adapter.jdbc.WrapperDataSource.getConnection method. 

During this I also realized that JBoss XA JDBC pool config is not intelligent 
(or I might be missing something here). I had specified min-pool-size as 200 
and did not specify max-pool-size and it defaulted to 20, which was strange. I 
am going to post this on JCA forum. Anyways, changing max-pool-size helped a 
bit and I was able to get another 5% CPU utilized due to that. 

I also found out that there was a bug report on 
org.jboss.resource.adapter.jdbc.WrapperDataSource.getConnection being slow. I 
am not sure if it is fixed in 4.0.5-SP1-ejb3. 

-Shrinivas

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