Vikram,
The installer should indeed create a new runtime directory in your jbpm-installer folder and copy the necessary jars there. When eclipse is started (using the ant script, not manually), it should automatically use the eclipse configuration file to set up the jbpm runtime (so you shouldn't do that manually). Could you simply retry setting up eclipse etc. to verify? Simply run "ant clean.demo" and then install.demo and start.demo again. If it doesn't work, would you mind sharing your OS, ant and java version with me so I can see if this is reproducable?
Kris