RDP will not copy an Paste to Windos 2008

Check the RDP Options - Local resources tab(it should have clipboard checked)?
rdp-options.jpg

Check RDP options for ticked "copy to clipboard" option

Yes the is Checked

Cool, have you tried these steps -

http://www.gfi.com/blog/copy-paste-working-remote-desktop-connection-whats-wrong/

Just thought I'd ask about the clipboard first, sometimes it isn't checked...

Then check GPO:
Computer Configuration \ Administrative Templates \ Windows Components \Remote Desktop Services \ Remote Desktop Session Hosts \ Device and Resource Redirection \ Do not allow clipboard redirection

Unfortunately that did not correct the problem. The PASTE option is still greyed out

Ok back up a bit, this worked previously yes?
Any new policies applied to workstations/server in the last while?

Which direction are you working? I mean you are on workstation and RDP'ing to server and can't copy/paste?

Yes it has workied in the past but has stopped working. I am on a desktop connecting to the server

Ok, although it may not be possible have you

1) Rebooted the server?
2) Rebooted the client?

Any other server's you can RDP to? To try to figure out whether the issue is client related, or server related?

Also test by RDP'ing to another win7 machine for example, the more testing you do the closer you'll get to the root cause...