I am getting the same problem as chwang. This is how my hsqldb-ds.xml file 
looks like:

<?xml version="1.0" encoding="UTF-8"?>

<!-- The Hypersonic embedded database JCA connection factory config
$Id: hsqldb-ds.xml,v 1.15 2004/09/15 14:37:40 loubyansky Exp $ -->



   <local-tx-datasource>

      <!-- The jndi name of the DataSource, it is prefixed with java:/ -->
      <!-- Datasources are not available outside the virtual machine -->
      <jndi-name>DefaultDS</jndi-name>

      <!-- for tcp connection, allowing other processes to use the hsqldb
      database. This requires the org.jboss.jdbc.HypersonicDatabase mbean.-->
      <connection-url>jdbc:hsqldb:hsql://localhost:1701</connection-url>

      <!-- for totally in-memory db, not saved when jboss stops. 
      The org.jboss.jdbc.HypersonicDatabase mbean necessary
      <connection-url>jdbc:hsqldb:.</connection-url>
-->
      <!-- for in-process persistent db, saved when jboss stops. The
      org.jboss.jdbc.HypersonicDatabase mbean is necessary for properly db 
shutdown

      
<connection-url>jdbc:hsqldb:${jboss.server.data.dir}${/}hypersonic${/}localDB</connection-url>
-->
      <!-- The driver class -->
      <driver-class>org.hsqldb.jdbcDriver</driver-class>

      <!-- The login and password -->
      <user-name>sa</user-name>
      

      <!--example of how to specify class that determines if exception means 
connection should be destroyed-->
      
<!--exception-sorter-class-name>org.jboss.resource.adapter.jdbc.vendor.DummyExceptionSorter</exception-sorter-class-name-->

      <!-- this will be run before a managed connection is removed from the 
pool for use by a client-->
      <!--<check-valid-connection-sql>select * from 
something</check-valid-connection-sql> -->

      <!-- The minimum connections in a pool/sub-pool. Pools are lazily 
constructed on first use -->
      <min-pool-size>5</min-pool-size>

      <!-- The maximum connections in a pool/sub-pool -->
      <max-pool-size>20</max-pool-size>

      <!-- The time before an unused connection is destroyed -->
      <!-- NOTE: This is the check period. It will be destroyed somewhere 
between 1x and 2x this timeout after last use -->
      <!-- TEMPORARY FIX! - Disable idle connection removal, HSQLDB has a 
problem with not reaping threads on closed connections -->
      <idle-timeout-minutes>0</idle-timeout-minutes>

      <!-- sql to call when connection is created
        <new-connection-sql>some arbitrary sql</new-connection-sql>
      -->

      <!-- sql to call on an existing pooled connection when it is obtained 
from pool 
         <check-valid-connection-sql>some arbitrary 
sql</check-valid-connection-sql>
      -->

      <!-- example of how to specify a class that determines a connection is 
valid before it is handed out from the pool
         
<valid-connection-checker-class-name>org.jboss.resource.adapter.jdbc.vendor.DummyValidConnectionChecker</valid-connection-checker-class-name>
      -->

      <!-- Whether to check all statements are closed when the connection is 
returned to the pool,
           this is a debugging feature that should be turned off in production 
-->
      <track-statements/>

      <!-- Use the getConnection(user, pw) for logins
        <application-managed-security/>
      -->

      <!-- Use the security domain defined in conf/login-config.xml -->
      <security-domain>HsqlDbRealm</security-domain>

      <!-- Use the security domain defined in conf/login-config.xml or the
           getConnection(user, pw) for logins. The security domain takes 
precedence.
        
<security-domain-and-application>HsqlDbRealm</security-domain-and-application>
      -->

      <!-- corresponding type-mapping in the standardjbosscmp-jdbc.xml 
(optional) -->
      
         <type-mapping>Hypersonic SQL</type-mapping>
      

      <!-- This mbean can be used when using in process persistent hypersonic 
-->
      jboss:service=Hypersonic,database=localDB
   </local-tx-datasource>

   <!-- This mbean should be used only when using tcp connections. Uncomment
   when the tcp based connection-url is used. 
   
     1701
     true
     default
     false
     true
   
 -->

   <!-- This mbean can be used when using in process persistent db -->
   
     localDB
     true
   


Any ideas why I am getting the error?
Thanks.

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