Unable to connect to SQL Server from SQL Reporting Services/CRM server when using the server name in the URL instead of "localhost"

We have the following setup:
Apps on Server1:
- OS Server 2003 SP2
- SQL Server 2005

Apps pn Server2:
- OS Server 2003 SP2
- MS-CRM 3.0
- SQL Reporting Services
- IIS

On Server2:
If I open a browser and use http://server2/reports, it prompts me for username/password, then all works fine until previewing the reports which requires access to SQL. I receive this error:
An error has occurred during report processing. (rsProcessingAborted)
Cannot create a connection to data source 'CRM'. (rsErrorOpeningConnection)
Login failed for user 'NT AUTHORITY\ANONYMOUS LOGON'.

If I open a browser and use http://localhost/reports, it does not prompt me for username/password and all works fine and I am able to preview all reports.

on Server1 or any machine on the domain:
If I open a browser and use http://server2/reports,  it prompts me for username/password, then all works fine until previewing the reports which requires access to SQL. I receive this error:
An error has occurred during report processing. (rsProcessingAborted)
Cannot create a connection to data source 'CRM'. (rsErrorOpeningConnection)
For more information about this error navigate to the report server on the local server machine, or enable remote errors
Of course using locahost is not applicable from elsewhere.

I know you wil need more info to resolve my problem. I will proivide you with more info when necessary. You help is appreciated.