It turns out that I had a problematic JBoss Tools version in Eclipse 3.7.
What I did was:
Update my JBoss Tools:
Go to Help>Install New Software..->Add
In the "Location", add this url: http://download.jboss.org/jbosstools/updates/nightly/trunk/
Select all checkboxes and complete the install (this should update or install your tools)
After the tools update:
Next, I had to delete all 7.0 servers and "JBoss 7.0 Runtime" settings in Eclipse
Then I created a new server runtime environment:
Supply your JBoss AS root directory (mine was C:\jboss\jboss-as-web-7.0.0.Final)
Make sure to select the "Create a new local server" checkbox
Create a server:
File->New->Other->Server->Server->JBoss Community->JBoss AS 7.x
Select your newly created runtime configuration, click next and finish.
Server should run with no problems!