My current project, and my last project (Xobni) both worked with COM components that could not use Reg-free COM for various reasons. Thus, if another app registers the same COM component, and then the user uninstalled that app, we needed to be able to re-register that COM component, which required SYSTEM level privileges in order to avoid a UAC elevation prompt.
Services can also be useful if you want to be able to run code when a user is not logged in, or if you want installs to be system-wide.
For example, in DesktopBootstrap, installs are for "all users," but if one user disables auto updates or starting up with Windows, it actually asks the service to disable those things for all users. You need a service running as SYSTEM to be able to pull that off, again unless you ask the user to elevate you.
Finally, I'm curious about ClickOnce's browser-powered install. I'm not saying it doesn't work -- it might even increase conversion rates -- I'm just curious. I'd love to learn more about what happens with users who are using a non-ClickOnce-compatible browser, and/or who don't have the .NET framework installed yet.