The following Strategy KnowledgeBase Technical Note explains that the error handling settings in Project Configuration (in Strategy Developer) do not apply to Report Services Documents in Strategy 9.x.
KB33130: MicroStrategy Distribution Services 9.x - 10.x "Delivery - Error handling" does not apply to Report Services Documents
Alert Based Subscriptions can be used as a workaround for Report Services Documents. Refer to the following technical note for instructions on creating an alert-based subscription.
KB34054: How to create an alert-based subscription in MicroStrategy 9.x Distribution Services
The following instructions are for stopping a Report Services Document subscription from sending if no data is returned in Strategy Web 9.x.

The subscription will be sent on the defined schedule only when data is returned in the Report Services Document.