I have tried many different configurations but my conclusion was that JBoss does not support unicode on MS SQl Server. No matter how you configure your JDBC connection, it does not save data in different languages in the unicode format.
MS SQL XA driver simply requires a property (SendStringParametersAsUnicode) set to "true" to achieve unicode update and it's working as expected on other application servers like WebLogic.
I really doubt that JBoss can handle unicode environment. One morething to mention is that there is no information about encoding/unicode/multilanguage in any of JBoss AS documentations. It's bizzar...
Any comment on this disappointing result of my research will be greatly appreciated.