Error while validating RDL content - no build provider

I'm getting this error when trying to save a report in the classic client with an SSRS layout defined.

Error while validating RDL content:
There is no build provider registers for the extension '.rdlc'.

I am using Report Builder 3.0.
The server is using SQL 2005

I can see a ReportLayout2008 folder on c:\ which contains the following -

<?xml version="1.0"?>
<configuration>
  <appSettings/>
  <connectionStrings/>
  <system.web>
    <compilation debug="false" strict="false" explicit="true" tempDirectory="$WebCompileFolder$">
      <buildProviders>
        <add extension=".rdlc" type="Microsoft.Reporting.RdlBuildProvider, Microsoft.ReportViewer.Common, Version=9.0.0.0, Culture=neutral, PublicKeyToken=b03f5f7f11d50a3a" />
      </buildProviders>
    </compilation>
    <authentication mode="Windows" />
  </system.web>
</configuration>

but it doesn't seem to be reading this file

Any thoughts please!

Simon