Now, SQL Azure Reporting Service deprecated. I have 5GB database. It is possible to deploy VM with express edition SQL and work with reports on it, still use old SQL Azure database in production ? It need replication ? or Reporting Services may be run at another server ? Thank you!
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You can install standard SQL Server Reporting Services on the VM (or better, a Cloud Service), and connect to your actual 5GB SQL database via a standard Connection String. I would not go down the path of replicating data unless you are looking to create a data warehouse for performance.
Here is a great article that may help get you started:
http://www.mssqltips.com/sqlservertip/1950/how-to-connect-to-sql-azure-using-sql-server-reporting-services-2008-r2/