Error 1001 in the Windows Service app setup project

The most important part of the article you linked, is here

To add a custom action to the setup project

1.In Solution Explorer, right-click the setup project, point to View, then choose Custom Actions. The Custom Actions editor appears.

2.In the Custom Actions editor, right-click the Custom Actions node and choose Add Custom Action. The Select Item in Project dialog box appears.

3.Double-click the application folder in the list box to open it, select primary output from MyNewService (Active), and click OK. The primary output is added to all four nodes of the custom actions � Install, Commit, Rollback, and Uninstall.

4.Build the setup project.

If you skip these steps, your setup project will build and copy your files to the correct directory; however, they will not register your binary as a service without these steps.

I should also note that this works for older versions of Visual Studio that had/have the built-in Setup/Deployment project template. The newer versions of Visual Studio have different setup/deployment projects (some requiring third party software.)

I'd recommend looking into WiX Toolset and check here for WiX Installation of Windows Services.

If the account is a local user account, try to use .\username when installutil prompts for the username and password.

The .\ stands for local machine.

Services require a fully qualified username (with domain), so when installing you need to be explicit about local user accounts.