It's fairly simple, really;
An Active Directory is essentially a database. The server has far too much work to do without the overheads of Terminal Services.
Conversely, Terminal Services requires all the resources it can get. If another service is taking those resources, there are less for the end users.
Calculate it like this;
W2k Server takes up to 256Mb RAM for the O/S alone. I know the official figure is around 128Mb, but just use perfmon to get a good idea of the base level you need.
Each user requires at least 32Mb. If you've got 20 users, that's 640Mb. Add that to your base O/S, we're talking the best part of 1Gb RAM.
Ignoring RAM, Databases use a lot of processor resource. On a single processor W2k server, you might expect to get 25 users or so in Terminal Server sessions, if you have 1Gb RAM. If a database is running, this can go down to single figures, depending on the database.
Next, hard disk activity. Databases really hit hard disks. So do 25 users. A Terminal Server should really be using a UW SCSI RAID controller with a pair of mirrored disks at minimum.
Last (on my list, but not exhaustive), network bandwidth.
The terminal server sessions won't use much - they are optimised for minimum network usage. Only Citrix MetaFrame uses less. However, as soon as the users want to print, copy and paste, or use any of the other virtual channel stuff, bandwidth per session can increase.
All of this can be measured (and printable reports can be made) using perfmon - so you can give your boss hard copies of the evidence.
Upgrading the server won't help much.
Most Citrix servers I build are dual processor with 2-4Gb RAM and have redundant RAID controllers. They never do anything but provide Terminal Services, and can still encounter performance issues. Add DC to the mix, and troubleshooting will become one of your biggest nightmares!
Terminal Servers need to be rebooted regularly. A lot of people complain about this, but it's fairly obvious why; How often would you reboot your PC?
Consider that each user on a T/S running a session can be considered as a computer user, that means you can multiply uptime by the number of users on the server. In the example I use, our 20 users effectively use the T/S for 100 days in a single 5-day working week.
I could go on, if necessary...
CitrixEngineer@yahoo.co.uk