Regarding whether RS is free, check out below my cut and paste of my response on the "Secure Install?" forum string.
The licensing model will not change with SQL Server 2005 (Yukon).
If you are already own SQL Server then you must request the Reporting Services media from your licensor. RS was released to manufacturing (RTM) on 1/27/2004.
Regarding you choice of RS vs. Crystal... I think the total cost of ownership (TCO) of RS is much lower and arguably the feature-set is overall better. And this is get version 1.0... so I think it is good horse to bet on.
It is not free and never touted as such.
It is included in SQL Server's bundled licensing, therefore you may add it at no incremental cost to an existing SQL Server server... but that would require adding IIS. So if you were to seperate your IIS tier from your database tier according to best practice to would need to buy a SQL Server license for the IIS server that will host the ReportServer web service.
Soooo, if you are purchasing a SQL Server license for the web tier (ReportServer web service) server, you ARE using the license--in the same way as someone buying a SQL Server license to install Analysis Services decoupled from the RDBMS.
The ReportServer database holds metadata (RDL files, directory structures, parameter settings, caching settings, encrypted stored creditials, etc...) and pre-rendered report snapshots that are only renderable on an activated node of the ReportServer using machine specific encryption. ReportServerTempDB stores and cached reports in the same manner... Aside from normal database security woes (everyone uses the SA account) I have no problem sleeping at night considering the security of this architecture.
But, if you do not want an IIS app running on your database server and you want to decouple the tiers, you do need to license SQL Server everywhere a part of SQL Server is installed.