Although I cannot tell you why the procedure you are using does not work -- I would have done the same thing more than likely -- I can suggest an alternate way to code the WHERE clause in the stored procedure to eliminate the LIKE comparison from the mix. Try the following:

WHERE LEFT(cipcode, LEN(@cip)) = @cip

Using this code if a person chooses a two-digit option, it will match the left two digits of the cipcode column to the @cip variable. If they select a four-digit code, it will match the left four digits, and so forth. (I know you are only providing two-digit options in the report parameter, but this approach will allow for other options should you want to allow longer parts of the code to match.)

This approach should be functionally identical to the LIKE comparison you used, but perhaps it will work better in this context.