This is only true for the jndi.properties that the JBoss server instance uses. Since the naming server is running in the same vm as the JBoss server, you do not want to set the java.naming.provider.url so that you get optimized lookups. In other words, ctx.lookup() will be a direct method call on the naming server instead of it being done as a method call over a socket.
Client obviously HAVE to set the property since they are not in the same VM that the server is in.
Thanks - this clarifies a few things :-)