Hi Srini,
please check if you can browser http://localhost/reports and http://localhost/reportserver on SCE server properly. If not, please check following setting:
1. In IIS Manager, open the Sites folder, and then open the folder of the Web site that contains the reportserver virtual directory.
2. Select the report server virtual directory.
3. In the IIS area, double-click Handlers Mappings.
4. In the Actions pane, click Edit feature Permissions.
5. Click Script.
6. Click OK.
7. Repeat steps 2-6 for reports virtual directory.
After that, try to see if it works at this time.
Hope this helps.