Todd,
WebSphere’s deployment model is a bit odd. It doesn’t have an “autodeploy” concept like all the other application servers, so the only way to deploy seems to be by manually deploying through its console. Also, manual deployment only accepts an archive file (EAR), not an exploded equivalent. When the app is deployed, however, it is saved in the standard exploded format and it will pick up changes to modified components. Given all this, here’s what needs to happen for WebSphere deployment.
1) You will need to do a one-time deploy as an EAR which will place the archive into WebSphere’s installableApps directory.
2) You must then use WebSphere’s console to deploy the application.
3) Once installed, you can then set up an exploded deployment on top of the one that WebSphere created in the ‘installedApps’ directory.
4) At this point, Sync-On-Demand will handle keeping your WebSphere deployment in sync with your workspace as you make modifications.
You’ll also need to make sure that you start WebSphere with only the JDK that is shipped with it by adding it to the Windows > Preferences > MyEclipse > Application Servers > Websphere 4 > JDK page.