Some users cannot get RDP connected through Internet Explorer after installing Service Pack 3 (SP3) on Windows XP machines due to the ActiveX control being disabled by default in the Service Pack. Luckily the Terminal Services can be re-enabled by the following method:
Click on Tools -> Manage Add-Ons -> Enable or Disable Add-Ons in IE to enable the Terminal Services ActiveX control. If you are unable to see/enable the Terminal Services ActiveX control in IE7 on XPSP3 as a workaround can you try deleting the following registry keys:
Once you delete these keys, the activeX control should be enabled in IE7.