I've found that it should be pointed to the archive containing the "javax.servlet" packages and classes.
But pardon my ignorance but I have not been able to find which jar this should be set to.
I'm using jboss-3.0.6_tomcat-4.1.18.
I'm using jboss-3.0.6_tomcat-4.1.18
I had the same problem. The following setting worked for me:
(of course you need to adapt "C:/jboss/" to your JBOSS installation directory.
Hope this helps.