I think your question in missing half a sentence that describes what is actually happening...
If by "reside" you mean that that's the directory the servlet class is in, then it won't work. All classes need to be inside WEB-INF/classes or WEB-INF/lib.
It also looks like you might be using the invoker servlet - read this for why that's not such a good idea. You should properly map your servlets to URL patterns in the web.xml file. [ July 12, 2006: Message edited by: Ulf Dittmer ]
I have disabled the invoker servlet even after that the problem is present. The main thing is that ClassLoader is unable to get the .class file because the servlet has not yet compiled. I have also set the CLASSPATH variable and all the settings are correct.
I don't understand how accessing the URL relates to compiling the servlets (servlets are not automatically compiled if they are accessed). The problem description is still missing something. Be aware that Tomcat does not use the CLASSPATH variable.
If you disable the invoker, then the URL will definitely not work (since it contains "/servlet/", which is what accesses the invoker servlet).