This used to work and though not mentioned in any IBM redbook; was considered as a hack by our team. But one day we ran into a problem which took us ages to decipher.
Whenever we changed the web.xml in WEB-INF, the changes were never reflected. For e.g. if we added a new struts-config entry to web.xml or a new filter, the configuration was never picked up.
We never really noticed this and thought the problem was with our struts-config file.
But the core issue was that WAS always picks up the web.xml file of an application from a different directory
I changed the web.xml file here and all issues with struts-config were solved :)