Configuring sql services is a nightmare. Why it seems like the tools to configure it are quirky and don't work as advertise. Anways, I've spent the last two weeks trying to set up remote reporting.
The following list are a few issues I ran into and what I did to get around them. Hope this helps.
Tip: If possible, don't every mess with the report server virtual directories (like recreating them), you'll end up with a permissions nightmare.
Issue: Report Builder wasn't launching (clicked on the link but nothing happen)
solution: In turn out to be some Internet explorer setting. I ended up resetting IE to all of it's defaults, which fixed the problem. But I still haven't figure out which setting breaks it.
Issue: Reports not running in report builder. Get the error "Cannot create a connection to data source 'dataSource1'".
solution: If you're not using windows integrated security
try creating the data source (to your report model) using the SQL reporting services web app (http://<localhost>/Reports/Pages/Folder.aspx), instead of creating the datasource in the report designer (which is quirky). Just click the "New Data Source" link and make sure you select the "Credentials stored securely in the report server" option, entering the user name and password of the role you specified of the remote database you using for the reports.
If you are using windows integrated security
Windows Integrated Security only works if your domain has Kerberos-delegation enabled - otherwise you will need to store credentials on the report server (more details: http://msdn2.microsoft.com/en-us/library/ms160330(SQL.90).aspx)

Report Services