DefaulApplicationPool and SSRS ReportingService2010 management webservice

I am using SSRS webservice to publish my reports. In order to access the webservice I am granting my machine account to access reports. Particularly I am giving it a Content Manager role. When Report Server is running on a different than my iis box DefaulApplicationPool needs to use Network Service to make it work. But when both iis ans SSRS server are on the same machine seems like Network Service is not enough and I have to use Local System. Is there any problem with using Local System in real customer environment? And if yes what are my options?

Thanks