Hibernate version:3.1
Name and version of the database you are using:POSTGRESQL 8.1

Please help me.
I extract Hibernate 3.1 from archive, which I downloaded from net.
I put JDBC jar file in lib directory.
I change file etc/hibernate.properties at postgresql part.
I set the JAVA_HOME to C:\j2sdk1.4.2_03
From a command prompt in the install dir I type build eg.
And i obtained that:

D:\hibernate-3.1>java -cp "lib/ant-launcher-1.6.5.jar" org.apache.tools.ant.launch.Launcher -lib lib eg
Buildfile: build.xml
[taskdef] Could not load definitions from resource checkstyletask.properties. It could not be found.
[taskdef] Could not load definitions from resource clovertasks. It could not be found.

eg:
[echo] remember to place your JDBC driver in the lib directory
[java] 10:49:40,921 INFO Environment:479 - Hibernate 3.1.1
[java] 10:49:40,937 INFO Environment:494 - loaded properties from resource hibernate.properties: {hibernate.connection.driver_class=org.hsqldb.jdbcDriver, hibernate.cglib.use_reflection_optimizer=true, hibernate.cache.provider_class=org.hibernate.cache.HashtableCacheProvider, hibernate.max_fetch_depth=1, hibernate.dialect=org.hibernate.dialect.HSQLDialect, hibernate.jdbc.use_streams_for_binary=true, hibernate.format_sql=true, hibernate.query.substitutions=yes 'Y', no 'N', hibernate.proxool.pool_alias=pool1, hibernate.connection.username=sa, hibernate.cache.region_prefix=hibernate.test, hibernate.connection.url=jdbc:hsqldb:., hibernate.connection.password=****, hibernate.jdbc.batch_versioned_data=true, hibernate.connection.pool_size=1}
[java] 10:49:40,937 INFO Environment:524 - using java.io streams to persist binary types
[java] 10:49:40,937 INFO Environment:525 - using CGLIB reflection optimizer
[java] 10:49:40,937 INFO Environment:555 - using JDK 1.4 java.sql.Timestamp handling
[java] 10:49:41,015 INFO Configuration:496 - Reading mappings from resource: org/hibernate/auction/AuctionItem.hbm.xml
[java] 10:49:41,437 INFO HbmBinder:302 - Mapping class: org.hibernate.auction.AuctionItem -> AuctionItem
[java] 10:49:41,546 INFO Configuration:496 - Reading mappings from resource: org/hibernate/auction/Bid.hbm.xml
[java] 10:49:41,593 INFO HbmBinder:302 - Mapping class: org.hibernate.auction.Bid -> Bid
[java] 10:49:41,625 INFO HbmBinder:817 - Mapping subclass: org.hibernate.auction.BuyNow -> Bid
[java] 10:49:41,625 INFO Configuration:496 - Reading mappings from resource: org/hibernate/auction/User.hbm.xml
[java] 10:49:41,671 INFO HbmBinder:302 - Mapping class: org.hibernate.auction.User -> AuctionUser
[java] 10:49:41,671 INFO HbmBinder:2342 - Mapping collection: org.hibernate.auction.AuctionItem.bids -> Bid
[java] 10:49:41,671 INFO HbmBinder:2342 - Mapping collection: org.hibernate.auction.User.bids -> Bid
[java] 10:49:41,687 INFO HbmBinder:2342 - Mapping collection: org.hibernate.auction.User.auctions -> AuctionItem
[java] 10:49:41,843 INFO DriverManagerConnectionProvider:41 - Using Hibernate built-in connection pool (not for production use!)
[java] 10:49:41,843 INFO DriverManagerConnectionProvider:42 - Hibernate connection pool size: 1
[java] 10:49:41,843 INFO DriverManagerConnectionProvider:45 - autocommit mode: false
[java] 10:49:41,843 FATAL DriverManagerConnectionProvider:65 - JDBC Driver class not found: org.hsqldb.jdbcDriver
[java] java.lang.ClassNotFoundException: org.hsqldb.jdbcDriver
[java] at java.net.URLClassLoader$1.run(Unknown Source)
[java] at java.security.AccessController.doPrivileged(Native Method)
[java] at java.net.URLClassLoader.findClass(Unknown Source)
[java] at java.lang.ClassLoader.loadClass(Unknown Source)
[java] at sun.misc.Launcher$AppClassLoader.loadClass(Unknown Source)
[java] at java.lang.ClassLoader.loadClass(Unknown Source)
[java] at java.lang.ClassLoader.loadClassInternal(Unknown Source)
[java] at java.lang.Class.forName0(Native Method)
[java] at java.lang.Class.forName(Unknown Source)
[java] at org.hibernate.util.ReflectHelper.classForName(ReflectHelper.java:108)
[java] at org.hibernate.connection.DriverManagerConnectionProvider.configure(DriverManagerConnectionProvider.java:61)
[java] at org.hibernate.connection.ConnectionProviderFactory.newConnectionProvider(ConnectionProviderFactory.java:124)
[java] at org.hibernate.connection.ConnectionProviderFactory.newConnectionProvider(ConnectionProviderFactory.java:56)
[java] at org.hibernate.cfg.SettingsFactory.createConnectionProvider(SettingsFactory.java:366)
[java] at org.hibernate.cfg.SettingsFactory.buildSettings(SettingsFactory.java:60)
[java] at org.hibernate.cfg.Configuration.buildSettings(Configuration.java:1869)
[java] at org.hibernate.cfg.Configuration.buildSessionFactory(Configuration.java:1162)
[java] at org.hibernate.auction.Main.main(Main.java:368)
[java] org.hibernate.HibernateException: JDBC Driver class not found: org.hsqldb.jdbcDriver
[java] at org.hibernate.connection.DriverManagerConnectionProvider.configure(DriverManagerConnectionProvider.java:66)
[java] at org.hibernate.connection.ConnectionProviderFactory.newConnectionProvider(ConnectionProviderFactory.java:124)
[java] at org.hibernate.connection.ConnectionProviderFactory.newConnectionProvider(ConnectionProviderFactory.java:56)
[java] at org.hibernate.cfg.SettingsFactory.createConnectionProvider(SettingsFactory.java:366)
[java] at org.hibernate.cfg.SettingsFactory.buildSettings(SettingsFactory.java:60)
[java] at org.hibernate.cfg.Configuration.buildSettings(Configuration.java:1869)
[java] at org.hibernate.cfg.Configuration.buildSessionFactory(Configuration.java:1162)
[java] at org.hibernate.auction.Main.main(Main.java:368)
[java] Caused by: java.lang.ClassNotFoundException: org.hsqldb.jdbcDriver
[java] at java.net.URLClassLoader$1.run(Unknown Source)
[java] at java.security.AccessController.doPrivileged(Native Method)
[java] at java.net.URLClassLoader.findClass(Unknown Source)
[java] at java.lang.ClassLoader.loadClass(Unknown Source)
[java] at sun.misc.Launcher$AppClassLoader.loadClass(Unknown Source)
[java] at java.lang.ClassLoader.loadClass(Unknown Source)
[java] at java.lang.ClassLoader.loadClassInternal(Unknown Source)
[java] at java.lang.Class.forName0(Native Method)
[java] at java.lang.Class.forName(Unknown Source)
[java] at org.hibernate.util.ReflectHelper.classForName(ReflectHelper.java:108)
[java] at org.hibernate.connection.DriverManagerConnectionProvider.configure(DriverManagerConnectionProvider.java:61)
[java] ... 7 more
[java] Exception in thread "main"
BUILD FAILED

since you are using Windows you can try

D:\hibernate-3.1>build.bat