A few weeks ago I ran into an error while setting up our test farm. I was creating the service applications and when I got to PowerPivot, I got the following error:

I was able to work around this error by using PowerShell to create the service application.
Background
First, some details of our installation: two web front ends, two application servers, and one SQL server. All are running Windows Server 2008 R2 x64 with Service Pack1. The SQL Server is 2008 R2 with SP1. The SharePoint servers are SharePoint Server 2010 Enterprise, and I installed SharePoint’s Service Pack 1 and the June 2011 Cumulative Update (by running all of the installers before running the first Configuration Wizard).
Clean Up from the error
Once you run into the error, you’ll see that a new database was created and a phantom application pool was created. To clean these up:
Remove-SPServiceApplicationPool -Identity "My App Pool"
Just replace the “My App Pool” text with the name of the application pool you want to delete.
Create PowerPivot Service Application using PowerShell
Now, to create the PowerPivot service application, you can use the following PowerShell script:
1: $PowerPivotServiceName = "PowerPivot Service"
2:
3: Write-Host "Creating PowerPivot Service Application..."
4: New-PowerPivotServiceApplication -ServiceApplicationName $PowerPivotServiceName
-DatabaseServerName "SQL.MYDOMAIN.LOCAL" -DatabaseName "Service_PowerPivot_1" -AddToDefaultProxyGroup
5: Write-Host "PowerPivot Service Application created"
6:
7: Write-Host "Creating Application Pool"
8: $AppPool = New-SPServiceApplicationPool -Name "AppPool_PowerPivot" -Account "DOMAIN\SERVICEACCOUNT_USERNAME"
9: Write-Host "App Pool created"
10:
11: Write-Host "Assigning PowerPivot Application Pool"
12: $sa = Get-PowerPivotServiceApplication | where {$_.DisplayName -eq $PowerPivotServiceName}
13: $sa.ApplicationPool = $AppPool;
14: $sa.Update();
15: Write-Host "PowerPivot Application Pool Assigned"
16:
17: Write-Host "Script Complete"
You’ll need to fill in a few parameters specific to your environment:
Line 4: DatabaseServerName, DatabaseName
Line 8: The Application Pool’s name and the service account that it will run as
Summary
Doing these steps should give you a working PowerPivot service application. We did open a support ticket with Microsoft. They confirmed that other customers have seen this error, but they are still researching the cause.