We are still using Microsoft WSE 3.0 and on test server started to get
Event Type: Error
Event Source: Microsoft WSE 3.0
WSE054: An error occurred during the operation of the TraceInputFilter: System.OutOfMemoryException: Exception of type 'System.OutOfMemoryException' was thrown.
at System.String.GetStringForStringBuilder(String value, Int32 startIndex, Int32 length, Int32 capacity)
at System.Text.StringBuilder.GetThreadSafeString(IntPtr& tid)
at System.Text.StringBuilder.set_Length(Int32 value)
at System.Xml.BufferBuilder.Clear()
at System.Xml.BufferBuilder.set_Length(Int32 value)
at System.Xml.XmlTextReaderImpl.ParseText()
at System.Xml.XmlTextReaderImpl.ParseElementContent()
at System.Xml.XmlTextReaderImpl.Read()
at System.Xml.XmlLoader.LoadNode(Boolean skipOverWhitespace)
at System.Xml.XmlLoader.LoadDocSequence(XmlDocument parentDoc)
at System.Xml.XmlLoader.Load(XmlDocument doc, XmlReader reader, Boolean preserveWhitespace)
at System.Xml.XmlDocument.Load(XmlReader reader)
at System.Xml.XmlDocument.Load(Stream inStream)
at Microsoft.Web.Services3.Diagnostics.TraceInputFilter.OpenLoadExistingFile(String path)
at Microsoft.Web.Services3.Diagnostics.TraceInputFilter.Load(String path)
at Microsoft.Web.Services3.Diagnostics.TraceInputFilter.TraceMessage(String messageId, Collection`1 traceEntries).
After investigation it was found, that the problem related to trace files, that become too big. When they were deleted and new files were created, error gone.