StackOverflow is a good resource for getting quick answers, but they explicitly don't like it when people get into theory. We can theory all day long here.
Anyway, Facelets support (xhtml) was not a standard part of
JSF 1.x. It's one of the major changes that came in with JSF2. So while
JBoss 5 may have Facelets support built-in, telling it that you're running JSF 1 should have disabled it.
JSF2 is a fairly transparent improvement to JSF1, so unless your app is doing tricky "clever" things with JSF internals, your simplest solution may to be merely to change the schema version from 1.2 to 2.x.
If, on the other hand that doesn't work, you'd need to explicitly add the Facelets jar to your WAR and possibly tweak web.xml. I ran Facelets as far back as JSF 1.1, and it works very well using the instructions that were supplied at the Facelets home page.
I do recommend reading the JBoss docs on webapp configuration, though. Just because JSF is a standard doesn't mean that it has yet reached the point where JSF WARs are 100% generic.