Andrew,
Yes, it's possible to have a button within an embedded report and it would behave the way you want it to, but from your description it appears that you've turned on the "editable" setting for your report. With that in place, the button won't be accessible unfortunately.
You found the other option I was going to suggest, and that's to place a button to create a child record on the parent form and this should behave the way you want it to. It seems like you're comfortable with setting this up already, but if you want a useful working example, I covered an API_EditRecord version (instead of API_AddRecord like you would need) during our Empower user conference in June. For a recording of the session, please go
here.
Eric
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Eric Mohlman
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