In addition to the previous comment, the user reconnecting to the WTS server must have administrator rights on the client computer.
After 5 1/2 hours on the phone with Microsoft, we resolved this by deleting the "HKLM\Software\Microsoft\MSLicensing" registry key on the client computers, and then reconnecting.
Numerous attempts were made to resolve the problem (clients could not connect, mostly Win2K but also a few WinXP). When connecting with Citrix, the connection would start but would terminate immediately without an error message, except for event id 1004 which appeared on the terminal/citrix server. A call to Microsoft and numerous attempts to fix this on the server side yielded nothing. The only thing that resolved the issue was to delete the "HKLM\Software\Microsoft\MSLicensing" subkeys "HardwareID" and "Store" (which causes the client to re-register and basically eat up another CAL) on every client.