The reporting services cannot connect to an instance using the ODBC Driver.
When used with iSQL, the ODBC Driver can connect and perform a simple select statement. However, the connection times out when used from the reporting service.
The account used to run the reporting service is a Windows domain user that is not a local user on the Windows computer.
Add the domain user account as a local user account on the Windows computer running the reporting service, then restart the reporting service.