The answer is....
It seems like a BUG in Jboss' JDBCStoreManager2. (cmp2.x jdbc2 pm)
I redid my jboss.xml to point to the default persistence-manager, JDBCStoreManager, and the exception is being caught as expected.
Please, if this is NOT a bug please advise. I have this question sitting in three other forums this entire week, and people scratching their heads, and I want to verify this before I report it as a JBoss bug all over the place.