You receive an Error if you install SQL Reporting Services on Windows 2003 SP1

Symptoms

When you install SQL Reporting Services on Windows 2003 SP1 you may receive an error message that is similar to the following:

HTTP 401.1 - Unauthorized: Logon Failed

or

Error while trying to run project: Unable to start debugging on the web server. You do not have permissions to debug the server.
Verify that you are a member of the 'Debugger Users' group on the server.

CAUSE

This issue occurs if you install Microsoft Windows XP Service Pack 2 (SP2) or Microsoft Windows Server 2003 Service Pack 1 (SP1). Windows XP SP2 and Windows Server 2003 SP1 include a loopback check security feature that is designed to help prevent reflection attacks on your computer. Therefore, authentication fails if the FQDN that you use does not match the local computer name.

WORKAROUND

Warning Serious problems might occur if you modify the registry incorrectly by using Registry Editor or by using another method. Modify the registry at your own risk.

To work around this issue, use one of the following methods:

Method 1: Disable the loopback check
Follow these steps:

1. Click Start, click Run, type regedit, and then click OK.
2. In Registry Editor, locate and then click the following registry key:

HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\Lsa

3. Right-click Lsa, point to New, and then click DWORD Value.
4. Type DisableLoopbackCheck, and then press ENTER.
5. Right-click DisableLoopbackCheck, and then click Modify.
6. In the Value data box, type 1, and then click OK.
7. Quit Registry Editor, and then restart your computer.

Method 2: Specify host names
To specify the host names that are mapped to the loopback address and can connect to Web sites on your computer, follow these steps:

1. Click Start, click Run, type regedit, and then click OK.
2. In Registry Editor, locate and then click the following registry key:

 HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\Lsa\MSV1_0

3. Right-click MSV1_0, point to New, and then click Multi-String Value.
4. Type BackConnectionHostNames, and then press ENTER.
5. Right-click BackConnectionHostNames, and then click Modify.
6. In the Value data box, type the host name or the host names for the sites that are on the local computer, and then click OK.
7. Quit Registry Editor, and then restart your computer.

Adapted of Microsoft KB 896861: You receive error 401.1 when you browse a Web site that uses Integrated Authentication and is hosted on IIS 5.1 or IIS 6
Workaround found by Stephan Jola, Skybow AG