Try to do what it's explain in this tutorial : http://docs.jboss.org/jbpm/v5.4/userguide/ch.installer.html#d0e481
You can also look at this video to understand how it's work in eclipse : http://people.redhat.com/kverlaen/jbpm-installer-eclipse-5.2.swf
It happens everytime? or the process instance runs at least the first time?
I faced a similar exception some time back. But I was able to run the process one time and from 2nd try onwards it would give me the time out exception. So my work around for that was to disconnect the task handler after start process API and connect it again whenever needed.
May be you could try the same thing.
If it doesnt work then proabably you can try cleaning the installation and running install.demo again.