Oleg,
Sorry but it appears that the attachments didn't come through. :-( I feel silly.
I can tell you what I did though.
I extracted the web service source and web client source.
I extracted the web service binary and then overlayed the contents of the webapp in web service with those files.
I extracted the latest database and then configured the web.config to acesss it via localhost and user/password combination.
That's really it. I can't understand why the service comes back with HTML. I realize that there's no data in the database. However, I should get back an empty schema representation in xml.