I had the same problem and did not pay attention to the part before creating the installation project. http://msdn.microsoft.com/en-us/library/zt39148a(v=VS.100).aspx
To create installers for your service
In Solution Explorer, right-click Service1.vb or Service1.cs and select View Designer.
Click the designerβs background to select the service itself, not any of its contents.
With the designer in focus, right-click and select "Add Installer."
By default, a component class containing two installers is added to your project. The component is called ProjectInstaller, and the installers that it contains are the installer for your service and the installer for the service-related process.
In the Design view for ProjectInstaller, click ServiceInstaller1 or serviceInstaller1.
In the Properties window, verify that the ServiceName property is set to MyNewService.
Set the StartType property to Automatic.
In the designer, click ServiceProcessInstaller1 (for a Visual Basic project) or serviceProcessInstaller1 (for a Visual C # project). Set the Account property for LocalSystem. This will cause the service to be installed and running on the local service account.
Dan bailiff
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