I have had the exact same problem today.

If you run a report, regardless of the current SET PRINTER TO status, the page setup in the report overrides the SET PRINTER command.

I have solved the problem by clearing the tag and tag2 fields in the .frx and with the following function, that sets printer according to OS, which I call before issuing the REPORT command.

FUNCTION SetPrinter(cPrinter)
LOCAL cOS
cOS = OS()
If "NT" $ cOS
cPrinter = "\\Servername\"+cPrinter
EndIf
Set printer To Name (cPrinter)
ENDFUNC

I don't like this approach, and if anybody knows how to make the report NOT use it's page setup printer setting I would like to know how.