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Source: Microsoft Support
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System Center Essentials 2007 installation may fail during Reporting installation due to a proxy configuration.
On the server on which System Center Essentials 2007 is being installed, if Internet Explorer is configured to use a proxy server to access the internet, and 'Bypass proxy server for local addresses' is not enabled, System Center Essentials 2007 installation will fail during the Reporting section of setup. This is because the installer will attempt to connect to the local SQL Reporting Services through the proxy server, which may reject the request, causing the installation to fail.
Ensure that Internet Explorer’s Proxy Server settings to ‘Bypass proxy server for local addresses’ setting is enabled before attempting to install System Center Essentials 2007. For Internet Explorer 7, this is done by going to Tools, Internet Options, clicking on the Connections tab, clicking on the LAN Settings button, and checking the ‘Bypass proxy server for local addresses’ box. Internet Options may also be accessed from the Control Panel.
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