You need to set JAVA_HOME to the directory where you installed the JDK (not the JRE!).
For example:
set JAVA_HOME=c:\jdk1.5.0_09
Or you can set it in the My Computer properties dialog.
By the way, safe yourself some grief and move JBoss and the JDK out of Program Files.
Spaces in directory names gives some Java code fits.
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