Error 'attempted to perform an operation not allowed by the security policy' running Standard Report

Symptom

Initial screen:

IBM Cognos 8 Controller
Application attempted to perform an operation not allowed by the security policy. To grant this application the required permission, contact your system administrator, or use the Microsoft .NET Framework Configuration tool.

If you click Continue, the application will ignore this error and attempt to continue.

Request for the permission of type 'System.Security.Permissions.SecurityPermission, mscorlib, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089' failed.
[Details] [Continue]

If click 'details' then get the following:
See the end of this message for details on invoking
just-in-time (JIT) debugging instead of this dialog box.

System.Security.SecurityException: Request for the permission of type 'System.Security.Permissions.SecurityPermission, mscorlib, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089' failed.
at System.Runtime.InteropServices.ComTypes.IConnectionPointContainer.FindConnectionPoint(Guid& riid, IConnectionPoint& ppCP)
at SHDocVw.DWebBrowserEvents2_EventProvider.Init()
at SHDocVw.DWebBrowserEvents2_EventProvider.add_NewWindow2(DWebBrowserEvents2_NewWindow2EventHandler )
at SHDocVw.DWebBrowserEvents2_Event.add_NewWindow2(DWebBrowserEvents2_NewWindow2EventHandler )
at Cognos.Controller.Forms.Common.frmRnViewer.set_WebBrowserInterop(WebBrowser WithEventsValue)
at Cognos.Controller.Forms.Common.frmRnViewer.CreateWebBrowserControl(WebBrowser& WebBrowser, Boolean bExcel)
at Cognos.Controller.Forms.Common.frmRnViewer.CreateWebBrowserControls()
at Cognos.Controller.Forms.Common.frmRnViewer.cboReportName_SelectedIndexChanged(Object eventSender, EventArgs eventArgs)
at System.Windows.Forms.ComboBox.OnSelectedIndexChanged(EventArgs e)
at System.Windows.Forms.ComboBox.set_SelectedIndex(Int32 value)
at Cognos.Controller.Forms.Common.frmRnViewer.InitReports()
at Cognos.Controller.Forms.Common.frmRnViewer.frmRnViewer_Load(Object eventSender, EventArgs eventArgs)
at System.Windows.Forms.Form.OnLoad(EventArgs e)
at System.Windows.Forms.Form.OnCreateControl()
at System.Windows.Forms.Control.CreateControl(Boolean fIgnoreVisible)
at System.Windows.Forms.Control.CreateControl()
at System.Windows.Forms.Control.WmShowWindow(Message& m)
at System.Windows.Forms.Control.WndProc(Message& m)
at System.Windows.Forms.ScrollableControl.WndProc(Message& m)
at System.Windows.Forms.ContainerControl.WndProc(Message& m)
at System.Windows.Forms.Form.WmShowWindow(Message& m)
at System.Windows.Forms.Form.WndProc(Message& m)
at System.Windows.Forms.Control.ControlNativeWindow.OnMessage(Message& m)
at System.Windows.Forms.Control.ControlNativeWindow.WndProc(Message& m)
at System.Windows.Forms.NativeWindow.Callback(IntPtr hWnd, Int32 msg, IntPtr wparam, IntPtr lparam)
The action that failed was:
Demand
The type of the first permission that failed was:
System.Security.Permissions.SecurityPermission
The first permission that failed was:
<IPermission class="System.Security.Permissions.SecurityPermission, mscorlib, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089"
version="1"
Flags="UnmanagedCode"/>

<IPermission class="System.Security.Permissions.SecurityPermission, mscorlib, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089"
version="1"
Flags="UnmanagedCode"/>

<PermissionSet class="System.Security.PermissionSet"
version="1">
<IPermission class="System.Security.Permissions.FileDialogPermission, mscorlib, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089"
version="1"
Access="Open"/>
<IPermission class="System.Security.Permissions.IsolatedStorageFilePermission, mscorlib, Version=2.0.0.0, Culture=neutral, PublicKeyToken=b77a5c561934e089"
version="1"
Allowed="ApplicationIsolationByUser"....