You are correct - the wizard does not support directly iterative development.
Unlike the Visual Designer code generation, where your full development cycle is supported directly and you can update the current definitions, the Data Service Wizard is designed for initial creation only. Unfortunately this means that you will either have to handle manually the updates (for instance to generate the service again in another project and then just copy the changes to the service you already have) or to replace the current service definition by running the wizard again. Have in mind that if you run the wizard again, all the files will be replaced and your manual changes, if any, will not be taken into account.
Do not hesitate to contact us if you have any other questions.
the Telerik team