CR 2008 on Server 2008 R2 vs Windows Server 2003

I have posted a similar question before but have not beeen able to come up with a solution.
We recently purchased cr2008 designer sp5 and installed it on server 2008 r2 and server 2003. We have web pages where CR is embedded in the code showing the report. This works fine on server 2003, also works fine on development desktop BUT does not work on server 2008 r2.
The application works but when time to show the CR itsself there is just a blank page with no error messages. I have replcated the code both using vs2005 and vs2008 and none of them are working when it comes to show report.
IIS is configured to run 32bit mode and classic (on server 2008 r2). Applications are comiled with x86 target.
We also have windows applications (without user interfaces) that loops through data base and saves crystal report as .pdf documents to folders to folders and they do work either.
I have been working on this for the last couple fof weeks and I am clueless.
Any ideas where to start looking and what to try? Any any help will be greatly appreciated. Thank you.

That could be the discovery we're looking for...
The message re. Database Vendor Code 1540 is coming from the database client without any modifications in the CR engine. E.g.; sometimes searching for the error in the database documentation helps. Google is often pretty good also. E.g.;
Crystal: Failed to open Connection : The Official Forums for Microsoft ASP.NET
http://download.tigerpawsoftware.com/download/v10/Errors%20That%20Can%20Occur%20When%20You%20Run%20a%20Report%20from%20T…
From SAP documentation:
Failed to retrieve data from the database. Details: [Database Vendor Code: <vendor code number>].
Cause
The report SQL queries that have been sent to the server cannot be executed, because an error was returned by the database server after it processed the queries. For example, a field/table/procedure required by the report is missing, or the queries contain syntax errors.
Action
Ensure the report is using the correct connection information. For example, the data source name, server name, database name, and user name are correct. In a database-client test tool, ensure that the fields, tables, and procedures used by the report exist and that SQL queries can be executed against them. In the Crystal Reports designer, verify that the SQL query, as shown under the Database menu Show SQL Query option, does not contain syntax errors. If the SQL query shown in Crystal Reports is valid, execute the same SQL query through a database-client test tool.
- Ludek

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