I think peoprl have already covered why the code doesn't work explaining its actual behaviour is quite complex but essentially you broke a very simple and well documented rule ...
wait's should always be in loops that
test a flag on wakeup to determine if the notify was intentional
Read wait description here ...
http://java.sun.com/j2se/1.5.0/docs/api/java/lang/Object.html#wait%28long%29
and also most good books or bug finders will tell you the same thing ....
If you don't follow this rule, all bets are off with regards to something called 'spurious thread wake up' , now some people will tell you this doesn't exist or is an OS dependent thing ... however ...
in
Java 1.5 (I think)?? Sun used the fact that the thread were laways allowed to spontanuosly wake up and signalled on thread death (to prevent programs such as yours lock up I think), this was reported as a bug against Java (see Sun site) but its not as its covered in the docs just previously didn't happen.
Quick Answer
Your code is badly formed and because of that your experience some none intuitive behaviour that's harder to explain.
"Eagles may soar but weasels don't get sucked into jet engines" SCJP 1.6, SCWCD 1.4, SCJD 1.5,SCBCD 5