With the MSI installers you can do Custom Actions. Some make the service install after setup with registry keys, some with coding execution of InstallUtil (which is installed in advance by prerequisite .Net Framework!), but the easiest with VS setup project is simply to add an custom action for project output for install+uninstall actions where you set the argument to respectively "/install" and "/uninstall" (this invokes InstallUtil without user interaction). See screenshot, it's from VS2003, but could be similar for VS2005.
In case you missed another point, the service project need two components also, the ServiceInstaller and the ServiceProcessInstaller, configured in a class that inherits System.Configuration.Install.Installer class. Without this the InstallUtil.exe will fail with some error message about no installers found. I've previously posted these classes for use with VS2005 Express here
http://www.vbdotnetforums.com/showpost.php?p=30791&postcount=2
Anyway, while debugging there is no need to build the setup, run the setup, uninstall the setup all the time. Since the only way to debug a windows service is to install it and start it and stop it and uninstall it, you'll be doing this all the time. It's much easier to have a Command window up where you have typed the two commands 'installutil -i service.exe' and 'installutil -u service.exe', where 'service.exe' is the project build output. Then it's just a matter of uparrow-enter/downarrow-enter to repeat the commands.
Also, this whole discussion about the extra step with InstallUtil is not a big issue, Windows Services is not something that is installed/uninstalled every day, not every year even, and it is usually handled by competent computer professionals. It is a rarely applied project type, and when people do make a windows service the first thing done is breaking the base intension about a windows service - ie, making it interact with user desktop... which usually means the project should not have been implemented as a service in the first place. I'm perhaps talking a bit over myself here, times do change, it's not only NT servers with administrators in charge that runs services anymore, but any desktop XP OS with ~erhm~ ordinary users.
Well, the screenshot should display just below here now..: