Connecting to local host. Error.

my suggestion, create a user account in SQL Server and use it instead of domain user accounts.

Although you have your report viewer set up for your database using your config file, when you created the crystal report in the designer, you added the database you were using along with Username / Passwords for it.  The crystal report is trying to access the database with this information it seems.  Try changing the information in the database connection within the Crystal Report Designer, not the config file.