It should not matter how you run Designer (standalone, JBT, JBDS), the option to create a web service should be available for any physical/virtual model. Are you seeing any errors in Eclipse?
You are correct with your assumption that web service models are needed to expose your data as a web service. With regards to other ways to create web service models, you can use the File->New->Teiid Metadata Model and choose Web Service as the Model Class. Then you can model operations, inputs, and outputs. Finally, you can add your virtual procedures to the web service operation transformation.
I've discovered that I have the 'Modeling / Create Web Service' menu option when I drill down to the individual tables but not up at the model level. I've also used the workaround you suggested, creating a Metadata Model and specifying Web Service as the Model Class. I can do what I want to do now using those two mechanisms. I'm having problems with the generated web service app but that's a different topic so I plan to start a new thread for that discussion.
Thanks for your help,