Yes it is possible to nest a lookup expression inside an iif statement.
Your code should look like the following:
=iif(Lookup(22, Fields!QuestionID.Value, Fields!ResponseDisplayText.Value, "ApplicationData"), "Agree", "Do not agree")
Also just for future reference, remember that when using scopes inside nested logic (such as "ApplicationData") you may run into some problems with SSRS if the innermost scope values are larger than/ different than the scope of the outermost values.
Hope that helps!