For a long time I struggled with 401 type Auth errors with my SRS 2005 installation. After many unsuccessful approaches I found the issue in my case was caused a slipstream server installation on Windows Server 2003 with SP2.
With this type of installation the default authentication providers for IIS websites were turned off.
To fix this I had to manually enter the provider in the Metabase.xml file located in the \system32\inetsrv folder.
Here is an example of what I had to do to fix the problem....
DirBrowseFlags="DirBrowseShowDate | DirBrowseShowTime | DirBrowseShowSize | DirBrowseShowExtension | DirBrowseShowLongDate | EnableDefaultDoc"
Path="C:\Program Files\Microsoft SQL Server\MSSQL.3\Reporting Services\ReportServer"
The only piece I had to add was this line: NTAuthenticationProviders="NTLM"
One additional note: To make this change you must first go into Internet serverices mananger Right click at the highest level (server Icon) in the console and choose properties.
Place a check in the box to enable direct metabase edit.
After completeing the process I did an IISreset and voila....weeks of struggling fixed by one little entry.