I have seen this one before. Sorry for late response, I assumed this was dead. I decided to go with WSUS instead of SCE. THanks for the attempt though.
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System Cetner Essentials install fails on SQL Reporting Server
I am installing System Center Essentials 2007 on a machine with Server 2003 R2 - Standard Edition. I originally installed letting the install try a new SQL Server 2005 Express edition for the database. That failed so I installed a local version of SQL Server 2005 Enterprise edition. Reporting services is running on the SQL Server, I have validated that through SQL Server interface and localhost\reportingserver web page comes up. I have gotten latest hotfix for SCE. I have checked all rights and SSL is turned off, etc. that I can find on the web. No matter what I try I get the error during install: "The selected SQL Reporting Server instance is not configured. To continue with setup, you must first configure the SQL Reporting Server instance using SQL Server's Reporting Services Configuration Manager."
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by: simonetPosted on 2008-07-17 at 08:02:27ID: 22026178
Try this:
http://www.myitforum.com/a