HTTP: 401 Unauthorized When Trying To Use Reporting Services And MOSS2007 In Integrated Mode

Sorry for the long post, but I'm trying to include as much info as possible.

I'm having trouble getting SQL Server 2005 Reporting Services and MOSS 2007 working together in integrated mode. Everything seems to be ok, but we get a 'HTTP 401 Unauthorized' error when using the 'Set server defaults' link from MOSS 2007 Central Administration. None of the other links give this error, but I'm not sure whether MOSS just eats the error message...

Here's the background:
Sql Server 2005 is installed on a separate box, let's call it SERVER1. This Sql Server hosts both the MOSS content database as well as the reporting services database.MOSS 2007 is installed on a different box, let's call it SERVER2I've installed all the required components for both boxes with no installation errorsSSRS seems to be running fine on SERVER1. Report Manager can be used directly with a browser in native mode.SSRS also *seems* to be running fine in Integrated mode, i.e. I can create a reporting database for integrated mode:
The url http://host/ReportService/ReportService2006.asmx responds normally when I access it through browser using my domain credentialsThe url http://host/Reports/ returns a message saying that I can't access it in integrated mode, which, I take, is normal
MOSS is running ok on SERVER2
I can see that SERVER1 is in the same farm after I've installed WSS3.0 on SERVER1Also I can see the "Reporting Services" section in Central Administration
So all in all, everything seems to be ok. However, when I try to use the 'Set server defaults' link from MOSS Central Administration I get an 'HTTP 401 Unauthorized' error. I'm assuming clicking this link will result in MOSS calling the Reporting Services' SOAP endpoint ReportService2006.asmx which now seems to be the culprit. Here's why I think so:

Whenever this occurs, the IIS logs on SERVER2 show that someone from SERVER1 is indeed trying to connect to ReportService2006.asmx, but I'm not seeing any user credentials being passed (whenever I access the asmx through my web browser, the credentials I entered in the browser are recorded in the log). Furthermore, the Event Viewer on SERVER2 shows Audit Failure (code 529) events occurring every time I get the HTTP 401 error.

The Event viewer's message is as follows:

Logon Failure: Reason: Unknown user name or bad password User Name: Domain: Logon Type: 3 Logon Process: Kerberos Authentication Package: Kerberos Workstation Name: - Caller User Name: - Caller Domain: - Caller Logon ID: - Caller Process ID: - Transited Services: - Source Network Address: <SERVER1 IP> Source Port: <PORT>
From the Event Viewer message and the IIS log it would seem like my MOSS is trying anonymous access whenever it tries to access the SSRS SOAP endpoint, which of course results in a 401, since anonymous access is not allowed. Please note that if I enable anonymous access in the Reporting Services' virtual directories (just for testing), I get a different error. This indicates that the HTTP 401 indeed originates from this particular web service call.

I've heard that SPS2003 and Reporting Services don't like each other on the same box, but this is hearsay. Does anyone know if this is a confirmed fact? This box does have SPS2003 and SSRS2005 installed. I tried to uninstall the SPS2003 but that didn't help anymore.

I noticed someone having similar issues in another thread, but I
didn't see resolutions. I'm pretty baffled as to whether
this is a problem with the MOSS Add-in or the Reporting Services
installation.

Any input on this issue is very much appreciated. I'll try to also include a follow-up if we're able to get this working ourselves.