I believe you're getting the error because the string literal exceeds the maxium length for a string literal (IIRC it was something like 254 or 255 characters). You make a minor alteration as below (look on third line).

ThisForm.grdServicetypespecs_xcelys.SetAll("DynamicBackColor",;
	"ICASE(servicetypespecs_xcelys.exclude_me = .T., rgb(255,255,128) ,;
		   servicetypespecs_xcelys.include_s1 = .T., RGB(128,255,128) ,"+";
		   servicetypespecs_xcelys.include_s2 = .T., rgb(128,255,255) ,;
		   rgb(255,255,255))","Column")

Of course, you could also "simplify" the resulting string a little as:

ThisForm.grdServicetypespecs_xcelys.SetAll("DynamicBackColor",;
	"ICASE(servicetypespecs_xcelys.exclude_me,"+TRANSFORM(rgb(255,255,128))+",";
	   +"servicetypespecs_xcelys.include_s1,"+TRANSFORM(RGB(128,255,128))+",";
	   +"servicetypespecs_xcelys.include_s2,"+TRANSFORM(rgb(128,255,255))+",";
	   +"servicetypespecs_xcelys.include_s3,"+TRANSFORM(rgb(192,192,192))+",";
	   +"servicetypespecs_xcelys.include_s4,"+TRANSFORM(rgb(255,128,255))+",";
	   +TRANSFORM(rgb(255,255,255))+")","Column")