This typically happens when the terminal session uses a 15 bit
display color depth.
You may have requested a higher color depth
in the Remote Desktop client, but the default group policy on
XP/2003 limits the maximum display color depth to 15 bits.
solve this, you can either try connecting with a lower color depth
(256 colors), or set the group policy on the server computer to
allow a higher color depths, and then connect requesting 16 bit
To set the group policy for this, please see MS KB