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I would create a service to geocode from existing shapefiles. I know that ArcEngine does not allow the creation of Windows Services. Is there an open source option someone could recommend?

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There are many relevant questions about this topic on our site. Have you performed a search? –  whuber Mar 4 '13 at 20:16
    
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The OpenStreetMap has an open source engine called Nominatim.

You can make a query using this URL:

 http://nominatim.openstreetmap.org/search?<params>
 http://nominatim.openstreetmap.org/search/<query>?<params>
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