The plastic water line leading into the water meter is leaking into the basement - we called the plumber who trenched and installed it in late 2006.  The soil sits just as he buried it.  He estimated $500 to dig up and diagnose.  I know it's not normal for a new water service to leak after 3 years - should I expect the plumber to cover the cost or provide a discount on the repair?

Depends- if it leaked 'cuz it was backfilled with a sharp rock pressing against the plastic, the pipe was damaged prior to installation, the pipe wasn't rated for the actual pressure, or a glued-fitting wasn't properly done, they owe you something. If it leaked 'cuz a groundhog was gnawing on it, maybe not. You won't have a clue unless you dig it up, and even then the proximate cause isn't always obvious. Be there to see for yourself when they dig it up and you'll be in a better position to negotiate, if need be.

It'll likely cost you $500 to dig it up in the first place. Most people are honest- if it turns out it was a clear installation error they'll probably kick some or all of it back to you, but be prepared to negotiate. But even if you get zip, as long as the repair gets done properly try not to lose any sleep over it- repeat problems of this type are rare (and @ 3 years with a $500 repair it's only a ~50 cent/day operating cost for the duration of the defective period, with reasonable hopes that it'll never recur.)

In my neck of the woods, most tradesmen will warranty their work for one year. If the problem is defective materials, then you might be able to recover some of your costs from the mfg. But don't hold your breath on that.
I have a hard time believing that the problem is caused by the installation process. Those type problems show much sooner than three years. My guess is that either the leak has been in process for a long time and is just now noticable, or some external condition has changed to cause the leak.
As Dana said, you can't really say until you dig it up and look at it.

If you want to analyze what happened be prepared to do hand digging while still a long distance away.............. it's hard to be gentle with a backhoe.

In my neck of the woods, North Texas, you wouldn't expect any contribution past one year.