When my Service is installed in /Library/Services, I get the blank dialog box with "OK" and "Cancel" to and it doesn't return my user name either, but this is only when installed system-wide.
When my Service is installed in ~/Library/Services, it works OK.
I believe that your Service may have gotten stored system-wide, in /Library/Services/ instead of just for your account, in ~/Library/Services because in Lion and in MountainLion, the folder ~/Library is invisible by default. I believe that Apple made this folder invisible to protect naive users against themselves, but for Services, I think that it's causing problems.
You can google for "show hidden mac files" and find articles on how to show all invisible files.
Or the following link may be more useful to you to enable you to only show the invisible file: ~/Library which may be better than showing all invisible files.