You are using SQL Server 2005. It required IIS for Reporting Services. Is IIS service running? Is it configured correctly?

Yes, IIS is running and I've just restarted the service. I believe it is configured correctly.

Virtual Directory is ReportServer.

RS database is set to ReportingServices and the Mode is Native.

When you say the Report Manager URL tab, where do you mean? I have a Report Manager Virtual Directory option in Reporting Services Configuration Manager, but this just has the name (Reports) and website (Default Web Site). If I browse the the Report site (http://localhost/Reports), I still can't access it and receive the permissions error if I click Home.

The SQL Server Reporting Services service is running under the SQL service account I mentioned earlier which is a local admin on the SQL server. I've tried setting the DB connection properties in the Reporting Config Manager to use this, but no luck. The service is running.

Thanks