Inno Setup for Windows service?

You don't need installutil.exe and probably you don't even have rights to redistribute it.

Here is the way I'm doing it in my application:

using System;
using System.Collections.Generic;
using System.Configuration.Install; 
using System.IO;
using System.Linq;
using System.Reflection; 
using System.ServiceProcess;
using System.Text;

static void Main(string[] args)
{
    if (System.Environment.UserInteractive)
    {
        string parameter = string.Concat(args);
        switch (parameter)
        {
            case "--install":
                ManagedInstallerClass.InstallHelper(new string[] { Assembly.GetExecutingAssembly().Location });
                break;
            case "--uninstall":
                ManagedInstallerClass.InstallHelper(new string[] { "/u", Assembly.GetExecutingAssembly().Location });
                break;
        }
    }
    else
    {
        ServiceBase.Run(new WindowsService());
    }
}

Basically you can have your service to install/uninstall on its own by using ManagedInstallerClass as shown in my example.

Then it's just matter of adding into your InnoSetup script something like this:

[Run]
Filename: "{app}\MYSERVICE.EXE"; Parameters: "--install"

[UninstallRun]
Filename: "{app}\MYSERVICE.EXE"; Parameters: "--uninstall"

Here's how i did it:

Exec(ExpandConstant('{dotnet40}\InstallUtil.exe'), ServiceLocation, '', SW_HIDE, ewWaitUntilTerminated, ResultCode);

Apparently, Inno setup has the following constants for referencing the .NET folder on your system:

• {dotnet11}
• {dotnet20}
• {dotnet2032}
• {dotnet2064}
• {dotnet40}
• {dotnet4032}
• {dotnet4064}

More information available here.