I found what might be a bug in SSRS when using a service account and a custom installation folder. I found that when loading report builder is would prompt for credentials trying to connect to the web service URL. doesn't matter what you put in, it wouldn't let me through.
Looking at the security logs would show that the authentication was successful but then looking at the application logs I could see an issue with ASP.NET 4.0.30319.0 when trying to read the 'ReportService2010.asmx' file in the SSRS installation folder.
Turns out the service account was missing rights to 'read' files in the SSRS install directory. It couldn't read the folder or the files within the folder.
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