1. I cannt see infinispan-5.x folder inside jboss home ? Do i need to donwload Infinispan and place it in jboss home ?
It doesn't ship with JBoss AS. I just happen to keep JBoss AS and Infinispan in a jboss folder. Sorry for the confusion. You will need to download it and you can keep it anywhere. Doesn't have to be in jboss home since it is independent of the app server.
2. Cannt we use integrated infinispan comes with jboss 7.1.2 ?
I wouldn't recommend it but haven't tried it. The infinispan shipped with JBoss AS is just the runtime jars. You won't have the startup scripts to easily launch a remote instance. If you have an EAP subscription I don't believe Redhat will support it as they view the integrated infinispan as only for the application server runtime. They would want you to pick up the data grid subscription.