I've done the following and still can't seem to get SSO working from XP SP3:
My Domain has been setup for 2008, the primary DC is a 2003 still but the backup is a 2008.
This is a working, though not live, 2008 terminal server.
I have locally adjusted the policy to Allow Delegating Default Credentials, setting TERMSRV/*
On the XP box:
SP3 is installed.
Going off of KB951608 I have
followed first portion to setup CREDSSP
followed the section regarding creating the registry keys
HKEY_LOCAL_MACHINE\SOFTWARE\Policies\Microsoft\Windows and created a key for CredentialsDelegation, then subkeys for AllowDefaultCredentials and AllowDefCredentialsWhenNTLMOnly.
Within CredentialsDelegation I have created DWORDs at value 1 labeled:
Witin the other two subkeys I have created string values with Name = 1, Data = TERMSRV/*
I have also tried installing fixes from KB KB953760.
Still, after restarts of course, when I attempt to connect to the server either using standard MSTSC or a remoteapp RDP I am prompted for the username password.
Also, I have set in the GPO for the server under System>logon to default to my Domain - however, when logging in if I do not specify the Domain it still puts the local server name.