While migrating SSRS 2005 reports to a new SSRS 2008 server, I had to recreate the project in Visual Studio, add the data source and the .rdl files because my original project files became corrupted (long story).
I saved a few .rdl files to the new folder, created a new and updated .rds (shared data source) and attempted to deploy to the new server, to a subfolder from the main reportserver folder.
I was repeatedly prompted for my login. After some futzing around, I attempted to strip all the sub folder items out of the project properties and I found I could deploy to the main reportserver folder so I thought I'd take a screen shot of the correct configuration for future reference.
What I had been doing is adding after /reportserver/[name of sub folder], where in reality you need to add that to the "TargetReportFolder" and also if you want your data source to be under that subfolder, update the "TargetDataSourceFolder" to the subfolder/data sources url as shown here.
Hope it helps.
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