Generally speaking, this solution is best suited for single-application or light applications use, as the complexity and overhead associated with more applications and more users can quickly overcome the lower relative cost. There can also be issues with user acceptance and overall interaction with traditional thin client computing. Users accustomed to music and movies on the PC may be dismayed to find that audio and video playback is spotty at best, or plain absent. The use of USB peripherals can be extremely problematic, and printing across slower WAN links can result in sluggish user sessions.
The benefits of Terminal Services are low price and ease of installation and maintenance. The downsides are a lack of scalability, potentially problematic performance over lower-bandwidth and higher-latency connections, and overall manageability. In short, it'll do for a small, dedicated rollout, but once it escapes those confines, it's generally time to move up the chain.
Citrix is second only to Microsoft in the Terminal Services game. The Citrix XenApp offering (formerly known as Presentation Server, and before that, MetaFrame) provides a significant management and performance layer on Terminal Services and enables far more fluid management of larger thin client implementations.
Those benefits come at a significant price, naturally, but in larger shops, the extended management is a requirement, not a luxury.
One of the more significant aspects of XenApp is that it uses the ICA protocol, as opposed to the RDP protocol that Microsoft Terminal Services uses. ICA is a thinner, cleaner, and more malleable protocol that functions better on lower-bandwidth, higher-latency connections and offers significant internal benefits as well, such as the ability to prioritize specific traffic within a connection, even to the application level. For example, in a particular user session, it's possible to maintain the snappy response of Microsoft Excel while reducing the performance of a background application that is not being used in real time. Features like that can make an otherwise sluggish and problematic user session feel much more like a local desktop system.
XenApp has other benefits, such as the management layers and connection options that provide load-balancing, high- and low-level user management (including session monitoring), and internal and external connection security. The latter is quite important, especially in some such vertical markets as health care, where HIPAA compliance is required. It also enables users to securely attach to their corporate desktop sessions from wherever they happen to be, using standard Internet browsers. In this respect, it can function much like a traditional VPN without requiring standard clients or specialized VPN concentrators.
XenApp can also handle heavier user workloads and application counts than plain Microsoft Terminal Services. That said, many applications will not function well in a XenApp virtualized application environment. Some will not work altogether; some may function, but their use in a Terminal Services deployment is not supported by the software vendor. It is extremely important to validate all planned applications prior to building any sort of thin client environment, or you may get caught short later.