Nevermind! The deployer *isn't* watching the directory, it only says so. The problem was that the JBoss protocol handlers weren't picked up. Adding -Djava.protocol.handler.pkgs=org.jboss.net.protocol to JAVA_OPTS at startup fixes it.
Also feel free to give us additional requirements if you have them, you know I am a big fan of your bits :)
I am seeing the same behavior, minus one item. Even after adding the JAVA_OPTS, I still cannot get RC1 to redeploy applications that have changed. Checking the DeploymentScanner MBean reports that ScanEnabled is true.