never used the "xml and web service" datasource. I have used the ADO.Net datasource and the xml file fine for years...
that might be worth a try.
they only other thing that comes to mind is that perhaps the relative path is incorrect, but if the report is displaying correctly (except for the gray box...) then that is probably not it.
our app passes the report and sets the data in a common object, so I am using different code...also our reports are embedded in the app (well a related dll really but minor difference)
hope some of this is useful and guides you to a solution.