I ran into a similar problem with a service that makes use of MODI. The service ran correctly on my local machine and our test environment, but when invoking the service from production machines (Windows 2003 and 2008 R2) I was seeing the following error:
- Server was unable to process request. ---> Object hasn't been initialized and can't be used yet.
I was able to fix this by going into IIS and switching the service's application pool identity to NetworkService. The previous identity account we were using had more restrictive permissions, so MODI was not being correctly accessed and loaded even though it was installed.