In the 2.1.0.CR1 distribution look for the file seam21migration.txt and go through those steps. Maybe that will help. I am using 2.1.0 with no problems and I kept my application.xml the same, I never read that you should change that.
there was nothing in the file that I would have missed.
But instead of JBDevStudio I'm going to use Eclipse/JBTools and create a new mavenized project from scratch...
Cleaning the application.xml has something to do with JBTools...