Problem

When you try to connect to a remote computer by using Remote Desktop on a computer that is running Microsoft Windows XP Professional Edition, you may receive the following error message: The remote computer disconnected the session because of an error in licensing protocol.

In this case, I was trying to make an RDP connection to a Windows 2000 Terminal Server

Resolution

Warning Serious problems might occur if you modify the registry incorrectly by using Registry Editor or by using another method. These problems might require that you reinstall your operating system. Microsoft cannot guarantee that these problems can be solved. Modify the registry at your own risk.

To resolve this problem, follow these steps:

1. On the computer that cannot open the Remote Desktop session, click Start, click Run, type cmd, and then click OK.

2. At the command prompt, type the following command, and then press ENTER:

   NET START TERMSERVICE

3. Click Start, click Run, type regedit, and then click OK.

4. In Registry Editor, locate and then click the following key:

   HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\MSLicensing

5. Delete all the keys that are located under the HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\MSLicensing key.
6. On the File menu, click Exit.
7. Restart the computer.

As soon as I restarted the computer, I was able to connect to the remote Terminl Server

Check out the full Microsft artice here