This article Posted by
Matt Wittemann seems to cover an issue that we are having.
The underlying connection was closed: A connection that was expected to be kept alive was closed by the server. Posted by Matt Wittemann
In a recent upgrade environment, now running CRM 4.0, I found that reports stopped working from CRM. What was strange was that reports could still be run from the SQL Reporting Services website, just not from CRM - not even on the CRM server, so I knew it wasn't just a Kerberos authentication problem (and SQL was on the same box with CRM anyway!). After checking and re-checking all the settings in the SSRS website, the registry hive for CRM, and everywhere else I could think of, I opened a support ticket with Microsoft.
But whenever I have to ask for outside help, I feel like I need to re-double my efforts in locating the problem and fixing it myself. (I should probably just open tickets all the time!). After much searching, I found an obscure reference on a SQL forum about this error (The underlying connection was closed: A connection that was expected to be kept alive was closed by the server.) and a mention of an update for SQL 2005. I logged onto the SQL server and ran Windows Update, and there it was - KB948109. Downloading this update and installing it fixed the problem. After the update, there was an error in the event log indicating that the .NET Framework 2.0 could not recompile, but upon running a report and waiting a long time for the app to compile, reports started working again throughout the network. Yay!
Here's a link to the update for more information:
http://support.microsoft.com/kb/948109