As far as I know the argument "-classic" don't work in jdk 1.4.2_05.
But I think the problem is somewhere else...
Why are there two dots in the end of your -Xmx128m argument?
I don't see it in my console when I start JBoss.
have a look at your run.bat file within the "bin" directory:
you'll probably find the two dots ".." in line 80, they seem to be there by accident and not on purpose.
I had the same problem and deleting the dots solved my issue.