In magnolia.properties file
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magnolia.repositories.home=C:\webapp\data\magnolia-author\repositories
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Above path does not report error at bootstraping and repository is created but in some odd directory (application server's working directory, I believe).
In my case repository was created in <jboss-install-dir>/bin/ebappatadmagnolia-autorrepositories/magnolia directory....Weird!!!!
There should be either path checking or error reporting in the logs in this case.....

Changing all to forward slashes fixes the problem....