On further investigation I noticed that eclipse was saying the following:
"Unable to find a 'userdata.img' file for ABI armeabi to copy into the AVD folder."
In order to fix this problem, in Eclipse choose Window -> Android SDK Manager
Once this loads, you need to ensure that you have installed ARM EABI v7a System Image under Android 4.0.3 (API15).
Once this is installed, try to create the AVD again and it should just work. It would have been much better if the "Create AVD" button did something instead of just failing silently! Hope this helps you out.