Looking at the error you are receiving it might be a problem with your JAVA_HOME environment variable.
If you have installed the JDK into a folder with a space in the name i.e. 'Program Files' this could be your problem.
I checked my JAVA-HOME enviroment variable there are no spaces. Any other suggestions would be appreciated.
Got it working I renamed the JBoss3.2.1 to JBoss in my directory, put it in the root directory, i.e "C:\JBoss"