A Service VM is one where an application runs directly on the 'bare metal' provided by the VM (that is, the whole point of a VM is to multiplex the hardware; it provides few or no abstractions as such). There's no guest OS as you'd think of one.
This idea also exists in exokernel designs:
In an exokernel, the guest OS is reduced to a library, like libc, which is (ideally) optimized for the specific application: Emacs has its own, Apache has its own, and so on. It's a half-step removed from the Service VM idea in that the applications themselves would still get to use the OS abstractions, unaware that the OS is basically gone.