Our team is switching to Scrum. I would be the ScrumMaster (in addition to being a developer), and another developer would become Product Owner (in addition to our product marketing guy).

All members of the team, including me, would report to the would-be Product Owner (by 'report' I mean that the guy would be our manager, handling administrative tasks like vacations, yearly evaluation, raises, etc.). Would this hierarchical link be prone to introduce issues? How do organizations typically map reporting structure onto agile teams?