OK, came across an issue today that is not well documented related to mstsc.exe not functioning properly. The user was trying to connect to a Windows Server 2003 Terminal Server using RDP 6.1 from an XP SP3 machine. The following error was in the event log:

"Event ID: 1000 Faulting application mstsc.exe, version 6.0.6001.1800"

After digging a bit more I noted that the machine had just been updated with XP SP3. The user had downloaded all updates but chose not to install .net 3.5 SP1 - (download from here Microsoft .NET 3.5 Framework Service Pack 1)
So, after a long download, install, and reboot problem solved.