This thread actually solved my problem, indirectly:

http://www.jboss.com/index.html?module=bb&op=viewtopic&t=112375

The key is:
One other potential trap is that I have just upgraded from Seam 1.2.1 to 2.0b1 
and "managed-persistence-context" has been moved from namespace core to 
persistence. If this is the case, then don't forget to add the persistence 
namespace to your XML namespace config:

xmlns:persistence="http://jboss.com/products/seam/persistence"; 

I am actually using Seam 1.2 and thus I must revert to core tag. And it works!

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