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I'm trying to publish a map service using simple xy data from a table in SDE; however, whenever I try to create the MSD, I'm told "no can do" by ArcMap.

I would like to be able to simply add xy coordinates in SQL and have them update in real-time in the map service.

I've experimented with model builder, but nothing's worked yet.

Any advice?

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@jswise is correct, in ArcGIS Server v.10 you cannot create an .msd containing an XY event layer - you can create a service from an .mxd though. Support for XY event layers in .msd's has been added in the next version (10.1) according to this comment:

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As far as I know, you can't put an x-y event layer in an MSD. One thing you might try is making two services, one with an MXD for your event layer and one with an MSD for everything else. Another option is to build a tool that converts your event layer to a feature class and run it nightly, then put the feature class in your MSD.

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