JSI Tip 3487. Terminal Services clients can't connect and the console desktop is empty, with no keyboard functionality?

In addition to the subject problems, clients receive:

The client could not connect to the Terminal server. The server may be too busy. Please try connecting later.

The servers System event log contains:

Event ID: 34 
Source: TermService 
Description: \{Access Denied\} A process has requested access to an object, but has not been granted those access rights.

These problems are symptomatic configuring the Terminal Services service to logon with an account other than the Local System account. Terminal Services must run under the Local System account context.

To resolve the problem:

1. Start the Computer Management MMC from a network computer.

2. Connect to the Terminal Services computer.

3. Expand Services and Applications / Services and scroll to Terminal Services.

4. Configure Terminal Services to Log on as: the Local System account.

5. Restart the Terminal Services computer.