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login-config.xml is used for all JAAS logins inside the Jboss VM, even in servlets.
If you need to use JAAS outside of the JBoss VM, it will use the default JAAS configuration mechanism, which relies on the auth.conf file (which should be on the client classpath).
So you don't need to modify the auth.conf if you just use servlets/EJB in the same VM.