Thanks for your posting. When you configured the connection string (either via a configuration file or via the Connection property), have you also specified a full path instead of just the file name? If not then SmartInspect uses the current directory of the process, which could be C:\Windows\System32 for a service, for example.
Please make sure to specify a full path and that the service also has the permissions to write to this directory.
You can learn about any errors by binding the Error event of the SmartInspect instance.