Usually your WebService methods return objects that have error information
embedded in it. So SOAP/hard exception and application exceptions are
different.

Example in C#

class clsResponse
{
   public bool bSuccess = true;
   public string sErrMessage = "";
}

class clsRateQuoteResponse : clsResponse
{
   public decimal dAmount;
}

[WebMethod]
public clsRateQuoteResponse GetRates(clsRateQuoteRequest rq)
{
   try
   {
       ...blablabla....
       clsRateQuoteResponse rs = new clsRateQuoteResponse();
       if( invalid zip code )
       {
           rs.bSuccess = falsel;
           rs.sErrMessage = "Incorrect zip code";
           return rs;
       }
       ...balablabla....
       rs.dAmount = $1000M;
       rs.bSuccess = true;
       return rs;
   }
   catch(Exception e)
   {
       ....Log exception.......and throw SOAP exception
       throw new Excpetion("Sorry, we have an internall error. Please try
again later");
   }
}

So if it's a soft error (the one that can be fixed on receiving end like
fixing address for example) you end up with normal response,

For hard errors (like database just died) I prefer to log them/page admin
and respond with SOAP exception.

George.