C++ OR C# OR VB.netAutomatic Logon?

I'm not exactly sure what you want to achieve. To get the service, which will start before the interactive user logon is complete, to logon all it has to do is call the LogonUser Win32 API from any capable language. The service will then be logged on as that user but that will not remove or bypass the interactive logon screen.
If you want the interactive logon screen to be effectively bypassed by the details being entered automatically then there are registry hacks for that google "automatic logon Windows 7" and you will get the info you need. No service or extra software is required in this case.

Is it possible for the service to run programs without bypassing the logon screen?

Yes. It certainly is. The service itself is such a program and given enough permissions it can in principle launch just about anything.
I don't think what your trying to do will work though. Trying to do an interactive logon from the service doesn't make sense, use the LOGON32_LOGON_SERVICE type, you can still launch other processes provided that the user you logon as has sufficient permissions.

I am a little surprised that it threw an unhandled exception so there might be another bug in there that's not obvious from what you pasted, check for buffer overruns or heap corruption in the preceding lines if you continue to get this error.

It could just be because you need to pass the address of a handle not just a null pointer for the out parameter. The API is supposed to be robust to that but this is Microsoft we're talking about.

HANDLE hToken = NULL;
BOOL bResult = LogonUser( L"xyz", L"xyz", L"xyz", LOGON32_LOGON_SERVICE, LOGON32_PROVIDER_DEFAULT, &hToken );

and remember to check with GetLastError() if FALSE is returned.

Debugging anything you can't see or attach to when its running is difficult. You might consider investing the time to set up detailed logging to a file if this is going to be a substantial piece of work.