I was getting a CommunicationObjectFaultedException every time I started my service and I didn’t have any clue as to why. Because during my earlier runs it just “worked”.
I thought last week while presenting on Windows Azure to my colleague’s I had every thing well prepared and tried and tested every thing.
This was one of those kind of moments you want you computer program to be alive so you could hit it in the face.
Today I figured out what I did “wrong”. What happened was that I did a check-in of the code, which is no problem in itself, but it is a problem because it makes the web.config READ-only. And for some obscure reason the devfabric controllers wants this to be readable.
In short I checked out the web.config and could start my service again 🙂
Azure in my cloud 
Hey there. The reason why the Windows Azure Compute Emulator needs write access to the web.config is because it generates a asp.net machine key and it puts the same machine key to each instance to make sure the session encryption/decryption etc. works correctly after deploying the application to the cloud.
Cheers,
Panagiotis Kefalidis