How do you change it to be optional, not required?
You cannot, the entire service management module sits on top of the projects module.
Yikes. Any thoughts on a work around? The hierarchy of AX appears to be: Customer> Project> Service, but the business needs of the organization dictate that project and service be equal from a hierarchy perspective. AX may not be the best option in this case then?
There is no workaround, you cannot use service without projects configured, all of the posting, consumption and invoicing is run through the projects module.
The project and service are equal in essence, the service order creates a sub-project depending upon the configuration. It is all reportable and controlled ultimately on a 1:1 basis and flows up into hierarchical projects to give you split level views depending upon what you want to see and where you look.
I would suggest you talk to your partner to get started on this, it is a big area to just dive into.