This is the note I got from Microsoft. After implementing their recommendations I still get the error. I will post their response.
From MSFT:
According to Problem Description and the specified forum, I understand that the issue you are experiencing is:
The TS users cannot RDP to the Windows 2008 Remote Desktop (RD) Session Host Server which is a domain controller by using MSTSC.EXE and received the following error message.
“Access is denied.” (Please refer to the following screenshot.)
Note: In Windows Server 2008 R2, Terminal Service has been renamed as Remote Desktop Service and the Terminal Server has been renamed as Remote Desktop (RD) Session Host Server.
If I have misunderstood your concern, please don’t hesitate to let me know.
Based on my experience, could you please check the policy “Allow users to connect remotely using Remote Desktop Services” on the affected RD Session Host Server?
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1. On the affected RD Session Host server, please open local policy. If the affected server is a domain controller, please open Default Domain Controllers policy. Please refer to the following screenshot.
2. Please navigate to the following path and enable “Allow users to connect remotely using Remote Desktop Services” policy.
Computer configuration/Policy/Administrator Templates/Windows Components/ Remote Desktop Services/ Remote Desktop Session Hosts/Connections
If this issue still persists, could you help take time to collect the following information to clarify the situation?
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1. Could you please let me know if the RD Session Host Server has been installed on a domain controller?
2. Since you mentioned “Modified all group policies to allow the RD to function” in Problem Description, could you please collect the gpresult log and upload to me? To do this,
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On the affected RD Session Host Server, please use the command "gpresult \v >c:\ gpresult.txt" (without quotation marks) in the command shell. After that, please upload the gpresult.txt
file to me. Please refer to the following screenshot.
Note: Please run this command under administrator privilege
3. Since you mentioned “Added the Remote Desktop Users group to the domain controller Remote Desktop users group” in Problem Description, could you please check the TS Users account has been added in the Remote desktop users group on the affected RD Session Host Server? Please refer to the following screenshot.
4. Could you please let me know if the RD Licensing Server has been installed on the same server as the RD Session Host Server? And please capture some screenshots of the TS Licensing Manager?
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a. On the RD Licensing Server, click Start > Run, type licmgr.exe
b. If the User Account Control dialog box appears, confirm that the action it displays is what you want, and then click Continue.
c. Maximize the Terminal Service Licensing window, click + before the server entity to expand it, adjust the split bar so that the string names of installed CALs are completely shown in the Terminal Server Licensing window.
d. Capture a screenshot of the Terminal Service Licensing window and upload it to me.
Note: Please refer to the below screenshot, we can check the specific licenses information on the TS License Server from the screenshot.
5. On the affected server, please help collect the Microsoft Platform Support (MPS) Report.
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To allow us to better support you please run the Microsoft Platform Support(MPS) Report for Windows 2008 Server R2 using the steps below. The tool gathers diagnostic information useful in resolving your issue. From a computer that is connected to the internet:
a. Please download and run the MPS report tool,
http://www.microsoft.com/downloads/...FamilyID=cebf3c7c-7ca5-408f-88b7-f9c79b7306c0
b. Please click This Computer, then, please select General, Internet and Networking, Server Components, click Next. Please refer to the following screenshot.
c. After the process complete, please save the result in the specified path and upload the CAB file to me.