In addition to setting this registry key, the service application must be marked as "interactive". This allows your service to interact with the desktop, and allows the debugger window to appear on your desktop.
This again requires modifying a registry key: you must bitwise-or the type entry for your service with 0x100 (this is the value for SERVICE_INTERACTIVE_PROCESS according to Winnt.h). The exact location and name of this registry entry varies. For example: