I've just installed TFS2012 and am trying to create a new project in the default collection via Visual Studio 2012 but I keep getting this error message:

TF218027: The following reporting folder could not be created on the server that is 
running SQL Server Reporting Services: /TfsReports/DefaultCollection. The report 
server is located at:
http://<servername>/Reports. The error is: The permissions granted to
user '<domain>/grandmasterflush' are insufficient for performing this operation.. 
Verify that the path is correct and that you have sufficient permissions to create the 
folder on that server and then try again.

I've checked the permissions and my user is a member of the Project Collection Administrators and the Project Collection Administrators group has the 'Create new project' permission set to allow.

The only thing I think it might be is that the user that I created during installation for the Sharepoint access and reports viewing does not have permission to write to the reports folder, however if I select "Do not configure a SharePoint site at this time" then I still get the error messages. I can't find the reports folder to check the permissions either.

TFS is using an instance of SQL 2012 that was already on the machine when TFS was installed.

Can anyone see what I'm doing wrong please?