Joseph, your action on this topic is probably what fixed it. This is a somewhat notorious challenge as it appears that you've done everything correctly, but you haven't actually completed the thing that Trailhead is checking. There are two ways to add a chart to a dashboard:

• Use the component dragged onto a data source in the dashboard edit view
• Use the chart that was defined in the report edit view (chart embedded directly in the report)

In the Report Charts section of the Visualizing Your Data unit, Trailhead taught you how to embed a chart directly into a report. You can tell the dashboard to use this embedded chart as the component rather than the one you dragged onto the data source in the dashboard editor by clicking the wrench icon for the component and checking the box you mentioned:
 
The New LEAD Trend by Source report that comes with the Salesforce Adoption Dashboards installed from the AppExchange includes an embedded pie chart with "Lead Source" as the field used to define the wedges, just as this challenge requires. However, Trailhead is checking to see if you've defined a pie chart with "Lead Source" wedges as your dashboard component. If that box up there is checked, you'll see the chart embedded in the report and not the chart defined by the component you've chosen in the dashboard edit view.

TL;DR: Click the wrench icon above New LEAD Trend by Source in the dashboard edit view, uncheck the Use chart as defined in source report box, drag the pie chart component onto the data source, and set the wedges to "Lead Source". You should earn your highly deserved Reports & Dashboards badge!