When trying to comply with Federal security standards you start to run into all sorts of problems! You may see the error above when trying to setup SQL SRS in your SQL SRS Trace logs. Additionally when going to the Report Manager URL you may be presented with a 500 Error.
To fix this you could disable FIPS on your server which is a no no or you could set the below settings and be on your way!
1) open the report manager web.config file
2) locate the <system.web> section in the web.config file
3) add the following key to the <system.web> section of the web.config file
<machineKey validationKey="AutoGenerate,IsolateApps" decryptionKey="AutoGenerate,IsolateApps" validation="3DES" decryption="3DES"/>
4) save the file and launch Report Manager