Resolution:
When using System.Diagnostics.Trace.WriteLine() to log messages from your .NET Service code, the lines may not show up in the Engine logs.

The problem is that you need to specify:

#define TRACE

in your code in order for this to work. You can also add the /d:TRACE flag to the compiler command line when you compile your code.

This is also documented by Microsoft at "http://msdn.microsoft.com/en-us/library/system.diagnostics.trace(vs.71).aspx"