There is no problem to have the reports in a web application. Problems only arise if they are used directly in web site projects, which have some specifics and limitations. We "push" using separate class library due to this and the fact that it is good to have the report logic separated from your app logic, as the reports can be used in both win and web applications.
About the stored procedure - you will find this KB article helpful:
Using data source with parameters in Telerik Reporting
the Telerik team