The symptoms of the problem are exact to that of Windows KB article http://support.microsoft.com/kb/929270
The resolution did not fix it. I can print from TS on client mapped printers through the printer properties 'print test page'. Can print from Notepad, but nothing else. Every other app. seems to require a default printer, and that is what i cannot do. The 'Administrator' account has no problems printing to any printer, from any software, or setting the default printer. I suspected permissions issue, but user accounts with the same permissions as the Administrator are having the same issue.
If you need more info, please let me know, i will be checking back regularly.