>>I would also like to know if there is no recommended default based on version of postgresql being used
No, it is all based on the functionality you require, not on the database level. You should read the docs which contain a complete description of the 3 different types of transactional settings you can specify in the *-ds.xml file.
>>Additionally i would appreciate if someone could explain the optional "<!-- corresponding type-mapping in the standardjbosscmp-jdbc.xml (optional) -->
This setting is used by EJB 2.x for Container-Managed Persitence (CMP). The value for <type-mapping> must match one of the entires in the server/xxx/conf/standardjbosscmp-jdbc.xml file.