first of all you need to make sure that the DTD in your web.xml is
PUBLIC "-//Sun Microsystems, Inc.//DTD Web Application 2.3//EN"
the key here is the version: it must be "web-app_2_3", not "web-app_2_2".
the 2.2 spec does not recognize ejb-local-ref, and thus the message you are getting.
but alas, this is not all. even though JBoss 2.4.4 supports local interfaces, the AbstractWebContainer does not (it does not take into account <ejb-local-ref> in web.xml). looking at the CVS repository it turns out support for this is already in JBoss 2.4.5 RC 1, and in the 3.0 beta as well.
hopefully 2.4.5 will be finally released soon.