SSRS appears to be ignoring Permissions set using Report Manager I have setup SSRS on SQL Server 2008 in native mode.

As an administrator I can login to report manager, upload reports and run them, and also use the Web Service URL to generate reports.

I have also created a local user on the machine, I went into Report Manager as Admin, and at the top level set permissions that should assign the local user to all roles.

When I login to the machine as that user, and then navigate to Report Manager I just get the heading for the page, but do not see any of the folders that are configured.

I've checked and the folders are set to inherit parent permissions and they are showing the newly created local user in there too.

It seems odd that I have set the permissions, yet SSRS is still not showing what I should be able to see. Is there another step I need to take other than configuring the permissions in Report Manager?

When logged in as the newly created local user:

Report Manager - Shows the heading for the page, but no folders/items

Web Service URL (http://machine/ReportServer) - rsAccessDeniedError
To give a user rights to work with SSRS they need to have permissions at the root folder (which is what it sounds like you have done), but you also have to go into the "site settings" link into  the "security" tab and add the user as (at minimum) a system user. 
It is easy to do one, but not the other. Both are required to allow full access to the system.