You'd have to build the grouping using a calculation.
It'd be something like the following if you're using the work item report. Please note: this seems to only give you a number from 0 - 4 corresponding to the priority (0 = none, 1 = low, 2 = Normal, 3 = High, 4 = Urgent). You can get the text values but you will have to update the code below to do that:
group.0.displayname=Priority
group.0.linkedname=direct
group.0.valueexpression=IF(ISBLANK({opTaskID}), {task}.{priority}, {opTask}.{priority})
group.0.valueformat=string
textmode=true
This calculation checks to see if the object is an issue. If it is not an issue, then it'll give you the task priority. If it is an issue, it will give you the issue priority.
Hope that points you in the right direction.