Excerpt from http://blogs.msdn.com/lukaszp/

When you upgrade SQL Server 2005 to SP1 and you are running Reporting
Services, you may start to get the following error message:

The version of the report server database is either in a format that is not
valid, or it cannot be read. The found version is 'C.0.8.40'. The expected
version is 'C.0.8.43'. To continue, update the version of the report server
database and verify access rights. (rsInvalidReportServerDatabase)

First the solution:

Got to Start à All Programs à Microsoft SQL Server 2005 à Configuration
Tools à Reporting Services Configuration

Connection to your report server on the connection dialog.  Navigate to the
Database Setup tab (left navigation pane, 6th from the top).

Click the Upgrade button on the Database Connection page.

Provide credentials that are members of the sysadmin SQL server group.

After you finish this, you should be good to go.

Now let's talk about what setup is doing under the covers and how to avoid
getting in this situation:

In SP1 we had to change the report server database format.  This meant that
during service pack installation we have to connect to the report server
database and upgrade the report server database.

When you run SP1 setup, by default we use the credentials of the user
running setup to connect to upgrade the report server database.  Sometimes
this does not work:

1)      when the user running setup does not have sysadmin group membership
in SQL Server

2)      when the report server database is hosted on a remote computer, if
you're running as a local user, your user cannot access the remote computer
to upgrade the report server database

3)      when the report server database is inaccessible - the sql server is
stopped or you cannot connect to the database for whatever reason.

You can change the credentials we use in one of two ways:

A)    In the UI you can select the report server database and click to
configure specific credentials

B)     On the command line you can specify the /rsupgradedatabaseaccount and
/rsupgradepassword switches

There is one case in which you cannot supply credentials.  If you run SP1
upgrade using Microsoft Update, the setup runs under a local account. This
account may not have permissions as described above.  As such, it is more
likely to cause you to encounter the error above.

Open the SRS config tool and go to the Database Setup section. Then connect
to the database in question.
After you connect click the "Upgrade" button and follow the instructions.