I had a similar situation. I am using TFS for source code control. What I found is that when it was checked in, it made the files readonly. This caused the above error in my service where it was opening them read/write. Once I checked them out for edit. Everything worked great. I am considering trying opening them readonly in the service. I think that once they get published to the production server, this is not an issue. Only in the development environment. I have seen similar issues with Services that use Entity Framework. If the .svc file is checked in, you can't do updates to the database through EF.