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Citrix TS ICA RDP program won't start

I can connect to terminal server fine from an xp client via remote desktop connection or ica connection (citrix) and get a desktop that works fine for the regular domain user connecting in.   But when I try to start any program from either the remote desktop app, the ica program app, or by setting an app to start on the server by telling either the rdp or ica protocol in the environment tab of tscc.msc to "start the following program when the user logs on" i then get this error:

This is on my 2003 servers with metaframe Presentation Server 4.0 - they are domain member servers connected to a 2000 domain.  The Terminal servers that are W2K with Metaframe XP 1.8 FR2 work fine -- they do not have this issue.

"To logon to this computer you must have terminal server user access permissions on this computer. By default, members of the remote desktop users group have these permissinos, if you are not a member of the RDU group or another group that has these permissions, or if the RDU group does not have these permissions, you must be granted these permissions manually."

I have set the domain users in the RDU group.  We know it is working because as I said, users can get desktops.
The program I am trying to start is c:\windows\notepad.exe and yes I double checked the path and it is correct.
1 Solution
If you run TSCC.MSC and select Connections in the left pane, right click the RDP-TCP object in the right pane and select Properties.  Select the environment tab, what is the configured option?

----- addendum from gsgi -----

run  mfcfg which is the citrix version of tscc.msc.
double click on ica-tcp click advanced and uncheck "only run published applications"
double click on rdp-tcp click advanced and uncheck "only run published applications"

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