I have found the cause. The documentation says "Open the hsqldb-ds.xml file which youÂll find in the deploy directory and which sets up the default datasource". The problem ws there are 2 deploy directories - one under ~all and another under ~default. Both these locations have a copy of the hsqldb-ds.xml file. The mods outlined in the manual have to be done in both files. I had made the mods to the one under all/deply only initially. After I made the mods to the file in default/deploy directory and restarterd the JBoss server, the db-create-table etc started working again.
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