Hosting an MSMQ service is a little bit different than the other bindings. Since WCF is using MSMQ as a transport mechanism, you must setup the queues, permissions, and bindingConfigurations to allow this to happen. Surprisingly, MSDN has a good sample article that goes into sufficient detail on how to set this up for the 3.5 WF-WCF-CardSpace samples.
I have read in other articles that the AppPool must have an interactive identity and that the queue names needed to match the name of the .svc file. I did not find this to be the case. I was able to use the NetworkService account for my AppPool after adding receive and peek permissions for NetworkService on my queue. Communication between client and WAS worked fine with my service file named WasServices.svc and my queue address as net.msmq://localhost/private/QueuedService1.
You can download my solution with the following link: WasServices.zip (78K)