There are 2 ways of doing it:
1. Tightly Bind your application with a web reference and create two MSI's -
one for Production environment and the other for Development environment. So
you Production MSI is pointing to your production web service and the
Development MSI is pointing to the development web service.
2. Loosly bind the application with your web service. Dynamically assign the
URL to the web service using the following code:

DummyService.Url = ConfigurationSettings.AppSettings[valueToRead];

Your valueToRead would be the URL of the production and development boxes.
Just comment and uncomment the URL, you want to use.

Please revert back if the above mentioned solutions worked for you.