ejb-jar.xml: I think you have to use "business-local" instead of "local". "local" is for EJB 2.1 beans, while "business-local" is for 3.0. With JBoss 4.2, I think both versions work, but in 5.0 this will no longer work. Probably, someone at JBoss misunderstood the spec and this was changed later ;-).
jboss.xml: you need "local-jndi-name" for you local interface, not "jndi-name". This might be the reason for your error.
Hope this helps
Thanks! Making these changes worked.