We found this issue when using Visual Studio 2015 Community Edition with NAV 2016*, but it's possible that you may encounter this with other editions and versions of Visual Studio as well.
Issue: When designing a Report object from the NAV Development Client and viewing the Layout in Visual Studio, Report.rdlc is rendered as an XML file instead of a "visual" layout with fields, controls and boxes.
Resolution: The rendering issue is caused by a missing component in the Visual Studio installation.
Modify the installation from Control Panel > Programs and Features > Microsoft Visual Studio <your edition> 2015, or re-run the Visual Studio installation.
From the Features list, enable the Microsoft SQL Server Data Tools option and proceed with installing this feature.
Upon completion, it may be a good idea to restart your computer and then try designing and viewing the Layout for a Report from the NAV Development Environment.
This time the Report.rdlc will correctly render as expected.
* Visual Studio 2015 is supported with Cumulative Update 1 of NAV 2016 and newer builds. If you are using NAV 2016 without any Cumulative Updates installed, you will need to use Visual Studio 2013.