I'm not sure what limitations of Windows Server 2003 TS you're talking about, actually. The licensing model has changed so that the Unlimited pool no longer exists for the same-generation clients, but otherwise I'm at a loss: Win2K3 offers a richer client experience with greater color depth and sound and drive redirection. It's also easier to manage on the server through its use of group policy and more efficient memory management....
That said, yes, you can use a Win2K terminal server in a Windows Server 2003 domain.
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