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Well, I got it working by actually not using the exclude channel for webservices and import.
I went with using a specific user id for my particular case it worked much better.
Since I was using cancel/save and by definition Exlcude Channel returns a FALSE response, so then I combined NOT Exclude Channel (web services) and Not exclude channel for import. Unfortunatly, I think we have too many 'not' and I ran into issues.
I think if you have a standard workflow (not cancel/save) then Exclude Channel ('Web Service' ) does work.
hope that helps.