When a service that is running under a user context fails, Dr. Watson displays:
User32.dll failed to initialize.
No User.dmp or Drwtsn32.log file is generated.
Since the service is running under a user context, Dr. Watson's attempt to access the desktop fails with an access denied, because it is the same context as the failing service.
The only current workaround is to configure the service to run in the LocalSystem system context by configuring the service to Log On As: the System Account and to check the Allow System to Interact with Desktop box.