From this site! http://geekswithblogs.net/WesWeeks/archive/2009/01/21/128874.aspx

Running Windows Vista 64 bit, Sql Server 2008 on a remote server. Using ASP.Net and the Report Viewer control on an asp.net page for a local report. Was also using IIS to host the web site instead of using the web server built into Visual Studio 2008.

Searched and tried everything I could find on the net trying to fix this freaking error. On a whim (and because I didn't know what else to do and was trying everything I could think of) changed the IIS 7.0 app pool to the classic app pool. Angels came singing down from the sky and my report worked.

What a PITA! Hope this post helps someone else.