SSRS Lookup #Error on some rows
If I had to guess I'd say that the datatype of transactionnotes does not match the datatype of code. I suggest trying ...

=iif(Fields!itemid.Value = 100785, 
    "Allocated to: " 
    &amp; lookup(cint(Fields!transactionnotes.Value), cint(fields!code.value), fields!fname.value, "EmployeeInfo") 
    &amp; " " 
    &amp; lookup(cint(Fields!transactionnotes.Value), cint(fields!code.value), fields!surname.value, "EmployeeInfo")
  , Fields!rdesc.Value)


or perhaps it should go the other way using CStr() instead of CInt() for both transactionnotes and code. Try it out and see.