John,
You DO NOT need VS2005 to design and deploy reports for Reporting Services. As you state, when you install SQL2005, there is an option (maybe not an "option" as I don't remember if you can unselect it but you get the idea) that will install a VS2005-ish application called SQL Server Business Intelligence Development Studio. I have VS2005/vS2008 myself, so I don't use the BID, but it really is just a scaled back version of VS2005 that has the SQL Reporting Services components only.
As a side note, IF you have VS2005 installed you can use it directly to develop the same reports as in the BID application. But the nice thing is that as a developer of primarily applications myself, I can create multiple projects in one solution...having a completely separate solution for my reports that might be viewable in my apps directly using the ReportViewer control.
Finally, one more side note is that Reporting Service reports allows you to attach custom DLLs and objects to the reports that might have custom business logic or rules in them. This is another reason you might need VS2005; if you need this functionality.
Geoff answered the rendering question well!
Hope that helps a bit
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People think it must be fun to be a super genius, but they don't realize how hard it is to put up with all the idiots in the world. (Calvin from Calvin And Hobbs)
Robert L. Johnson III
CCNA, CCDA, MCSA, CNA, Net+, A+, CHDP
VB/Access Programmer