Problem
Windows 2003 terminal servers wouldn’t allow audio redirection over RDP.
Client: Windows XP SP3 w/ RDP 6.1 client (6.0.6001).
Servers: Windows 2003 Standard R2 (32-bit) , SP2, all current patches.
Servers are in “Terminal Services” OU that sets group policy “Allow audio redirection = Enabled.” Viewing in RSOP MMC confirms that the setting is applied.
gpresult /v:
GPO: Terminal Server Test
KeyName: SOFTWARE\Policies\Microsoft\Windows NT\Terminal Services\fDisableCam
Value: 0, 0, 0, 0
State: Enabled
HKLM\SOFTWARE\Policies\Microsoft\Windows NT\Terminal Services\fDisableCam == 0
Connect via RDP. Open Control Panel -> Sounds and Audio Devices. Uncheck “Mute” and click “Apply.” “Mute” is checked again.
Clicking “Advanced” under “Speaker Settings” results in error “DirectSound settings not available.”
Similar
http://www.virtualpcfaq.com/Virtual_Server_2005/rn-738-15532_DirectSound_settings_not_available.aspx
Solution
RDPCLIP.EXE wasn’t running.

I didn’t realize that rdpclip.exe was needed for audio redirection and must have unloaded it when trimming startup programs to lower cpu/memory. I had already disabled clipboard redirection to speed things up, so I figured there was no need to run rdpclip.exe, which, as the name implies, was originally a Windows 2000 resource kit utility to allow copying and pasting files between client and server. My kingdom for an architecture diagram….