It's important to recognize exactly where that connection needs to exist.   ODBC Connections are specific to the machine on which they are configured from within the Windows Control Panel (under Administrative Tools (Tasks?)).  Anyway, once the connection is established on the server that is actually running the Reporting Services service, you can then create a data source based on that connection.   However, if you are developing that report on your local machine, it will also need to have that same ODBC connection defined.  Unless you use Report Builder to create your reports or use the actual server itself to configure your data sources, there's no avoiding creating a local ODBC connection so that you can test within Visual Studio on your local machine.