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We would like to pull in data using Lightning Connect and create reports in Salesforce on that data. Is this possible and what problems/challenges should we expect?

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For those who don't follow this space closely, reporting against External Objects has been introduced with Winter '17. Check out the Release Notes for more information.

Note that there are numerous restrictions in terms of the number of records that can be returned from the External Object(s), Child/Parent relationships, etc.

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Update

Reporting against External Objects has been introduced with Winter '17. Check out the Release Notes for more information.

Currently the lightning connect dont support reports .I got the information from below document

https://help.salesforce.com/HTViewHelpDoc?id=platform_connect_considerations_compatibility.htm

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    Correct. It does not support reports at this time. – CoryCowgill Jan 26 '15 at 16:02
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Look into qlikview. We recently implemented this tool and it's amazing. We have even integrated it to Salesforce by making the URL that the reporting/dashboards a web tab.

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