AFAIK, it is an oracle specific constraint to not allow both a unique and primary key constraint on the same column. It certainly works fine with postgresql and DB2.
As for where the bug actually lies, that's a good question. Probably need to file a bug against hbm2ddl to drop the unique constraint on Id columns for Oracle. But there are other places to fix it, obviously.
I'm surprised you're the first one to find this.
Thanks Devon. After your response, I tried the HibernateTools plug-in on Eclipse Europa and saw the same result which clearly indicated the problem was related with HibernateTools, not with Seam. Consequently, created a Jira issue on Hibernate Tools project: http://opensource.atlassian.com/projects/hibernate/browse/HBX-978
Ali Sadik Kumlali