Please define what you mean by not working. If you expect that you would have your business objects available in the Data Explorer, then you are wrong, as you should have a datasource set in the designer for that.
If you simply cannot use the Previews in design time, then have in mind that the Telerik Report Designer
operates inside the Visual Studio application. When previewing a report, the project that contains the report is compiled (if needed) and the report class is instantiated through Reflection, and passed to the previewer. This means that the report constructor is executed in the context of the Visual Studio application, so the current application is devenv.exe. Have in mind that the valid config file in this case is the devenv.exe.config file and any connectionStrings or references to your DAL should be added in that config when previewing and external assemblies present in the same folder.
the Telerik team