ReportViewer Error - Request Failed with HTTP Status 401: Unauthorized

Question

I am using Visual Studio 2010 SP1, .Net 4.0, SSRS 2008 R2, Windows XP Professional

The following is the error that I get when I try to run reports using Visual Studio 2010 (debug mode) on my development machine.

Request failed with HTTP status 401: Unauthorized.

Web.config has settings:

<authentication mode="Windows" /> <identity impersonate="true" /> 

I have:

• set the class for WindowsImpersonationCredentials : IReportServerCredentials .
• checked ServerReport.ReportServerCredentials before running the report, and it has the user ID that is registered on the computer, but ServerReport.ReportServerCredentials. ImpersonateUser is null before running the report.
• Web application and SSRS are on the same development machine.
• Changed DisableloopCheck to 1 in the registry - it does not matter.

A report works fine when I run it directly from the report manager. The same code works fine on the server, but not on my local computer (debug mode).

It was not possible to find out what was happening on the ground behind the scenes. Any help would be really appreciated.