In reports I need to show localised field labels and entity names. For this I need to retrieve some pieces of metadata, namely -- localised entity names.
Can you access metadata in Fetch-based reports? If you can, how severely will performance suffer?
Sorry to say that entity metadata is not exposed via the FetchXml interface as neither "attributes" nor their corresponding "labels" are entities, so cannot be queried.
You can prove this by using the FetchXml builder ([details of getting it and making it work with CRM 2011 are here][1]). You will note that none of the available entities contain the information you seek.
Edit: looking at the core requirement (rather than answering the question in isolation as I originally did), it is possible to include "label" values in FetchXml statements, as @skfd notes in his own answer.