Audio not working over RDP to a HYPERV VM

What is the Client OS ?  Hope you verified volume control panel.

the client os is windows xp and i can get sound on the local machine without issue just when i do a rdp session to the server 2008 terminal server

have you made sure that you have audio enabled on the 2008 TS (i.e. - is there a soundcard listed under hardware on the 2008TS).

There is no sound card as it is virtualised

OK - so if there is no soundcard installed in the 2008 TS, how do you expect it to generate sound that can be sent back to the XP workstation?

A TS session produces all graphical and sound from the server that is hosting the TS - in your case, your virtual server.  Bottom line is, without a soundcard installed, 2008 TS will only send keyboard beeps back to the client connecting to it.

Please read over the steps.

http://sqlblog.com/blogs/john_paul_cook/archive/2009/09/16/16779.aspx

http://social.technet.microsoft.com/wiki/contents/articles/hyper-v-troubleshooting-enabling-audio-over-rdp.aspx

i have a sound card installed in the physical server but with hyper v not emulating sound cards it shows as there being no audio device installed on the virtualised ts

Have you read over the links posted.

i have read through both links and i did look at them yesterday before posting on here but for some reason when i go into the sound control panel applet it doesnt give me any options everything is greyed out as per attached image
SoundCPL.jpg

also attached is a screen shot of the windows xp sound cotrol panel applet
xp-sound.JPG

You followed this one?

http://social.technet.microsoft.com/wiki/contents/articles/hyper-v-troubleshooting-enabling-audio-over-rdp.aspx