dknutson,
I have modified the Atomikos output directory (in the jta.properties file) to webapps\MyApp folder and could see that folder after deploying the application.
How can I change this path so that it creates the folder in the withing the app structure? ie under webapps/myapp folder
In the jta.properties file, you need to change the path in the following lines to External Server dir\webapps\yourapp folder (for ex: C:\Servers\Tomcat 7\webapps\TestApplication) and then export the application as a WAR file.
com.atomikos.icatch.output_dir=/atomikos-sw-tmp/
com.atomikos.icatch.log_base_dir=/atomikos-sw-tmp/
Here are the last few lines of catalina.out from when I start the app in tomcat. As you can see, it tries to read the jta.properties settings, but something is wrong with it using the /atomikos-sw-tmp/ location.
The error stack trace from the catalina.out is missing from your post. Can you please attach the error stack trace to help us investigate further.