What version of JDK are you running? I seem to remember that there are issues with later versions and they might be causing your problem. Look in the InstallationGuide.pdf and it explains this in detail.
From the Installation Guide:
For example, the following is valid:
However, all Java services in the FolderA hierarchy must be directly under FolderA; no Java services may be defined within FolderB (or all Java services must be moved to FolderB). Note that you can successfully add a Java service to FolderB; however, thereafter, changes to services in FolderA will not compile.
Again, these restrictions apply only if your server is using JDK 1.3.x to compile Java services. You can further use the JDK 1.3.x as a runtime environment."