For anyone googling, the solution is that SSRS does not explicitly set the arithabort option.

It will inherit whatever is set at the DB level.

In my case, the DB's have been upgraded from 2000 to 2008 so the arithabort option is off as it was defaulted to OFF.

You should not have the issue with DB's created with 2008 since it defaults to on, but if DB was created using SQL2000, would have defaulted to OFF.