Having a space in your download/install dir causes problem on AS 7(common on Mac for those forgetting to set simple username or on windows where "Documents and Settings" is the default - hence why I marked it critical :

mkdir "space launch"
cd "space launch"
unzip jboss-7.0.0.Alpha1
cd jboss-7.0.0.Alpha1
./bin/standalone.sh

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JBoss Bootstrap Environment

JBOSS_HOME: /Users/max/space launch/jboss-7.0.0.Alpha1

JAVA: java

JAVA_OPTS: -Xms64m -Xmx512m -XX:MaxPermSize=256m -Dorg.jboss.resolver.warning=true -Dsun.rmi.dgc.client.gcInterval=3600000 -Dsun.rmi.dgc.server.gcInterval=3600000

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Exception in thread "main" java.lang.NoClassDefFoundError: launch/jboss-7/0/0/Alpha1/standalone/log/boot/log
Caused by: java.lang.ClassNotFoundException: launch.jboss-7.0.0.Alpha1.standalone.log.boot.log
at java.net.URLClassLoader$1.run(URLClassLoader.java:202)
at java.security.AccessController.doPrivileged(Native Method)
at java.net.URLClassLoader.findClass(URLClassLoader.java:190)
at java.lang.ClassLoader.loadClass(ClassLoader.java:307)
at sun.misc.Launcher$AppClassLoader.loadClass(Launcher.java:301)
at java.lang.ClassLoader.loadClass(ClassLoader.java:248)