Personally I would suggest the Web Application project as well. However, if you have to stay with the Web Site, you can move the report to a class library.
There is a good article about the difference between the Web Site and the Web Application Project which can be found here
. Note that if you "Need to control names of output assemblies"
you should use a web application. This is the reason for the posted problem. As the web site changes the name of the compiled assembly, the resource manager could not find the appropriate resource.
All the best,