Dag Sjolund has just posted this message to the THIN list:
In preparing for an upgrade of a Windows 2000 Server-based terminal services farm to Windows 2003 Server, I have run into an issue with the cursor blink functionality on the Windows 2003 Server platform. After talking with Microsoft Support, cursor blinking functionality is programmatically disabled by design on the Windows 2003 Server platform for RDP sessions. This was not the case on Windows 2000 and NT 4.0 based platforms. Microsoft's reasoning for this design is likely anchored in the historically well known issue of bandwidth implications relating to a blinking cursor, coupled with the desire to make RDP protocol as "thin" as possible by default. Even though the cursor blink issue only had bandwidth implications in certain environments, the global disabling of this "feature" has ramifications in environments where available bandwidth is a non-issue.
The cursor blink rate issue is a big one as it relates to window/field navigation, especially for visually impaired users, and though a minor detail configuration wise, is a show stopper for the overall solution.
I have an active case with MS Support on this issue, though it is currently in a "We can't/won't change this functionality" stage.
This is very unfortunate, and I can see how it could become a show-stopper for some people. I would imagine that Microsoft will release a patch that keeps the default setting configured to not blink while still allowing administrators to override that setting as needed.