Applied the fixes provided from this link on the SharePoint server and it solved my headache.

http://philwicklund.com/archive/2009/05/20/ssrs-reports-do-not-work-within-sharepoint-when-using-host-headers.aspx

"An unexpected error occurred while connecting to the report server. Verify that the report server is available and configured for SharePoint integrated mode."

I can run the reports from the Reporting...