Error when selecting "windows Authentication" for Reporting Service Integraion

In Sharepoint 2007, you might get this error when configuring reporting service authentication mode:

 "The request failed with HTTP status 401: Unauthorized"

it can be caused by either

1) you are not inside the server where the central administration is hosted

or

2) the kerberos authentication in report server web service is not enabled. See this post on how to enable kerberos for RS

[Update] Sharepoint 2010 will not give this error in either way, but in order to get a security trimmed report, kerberos authentication still needs to be enabled manually.