It works fine, although you need to make a registry change so the TS can locate the TSLS, as it usually queries the DCs for the TSLS.
In 2000 TS w/ AD the TSLS must be on a DC. In 2000 TS w/o AD, the TSLS should be on the TS. With 2003 TS, the TSLS can be on a 2003 DC or any 2003 Member Server (in the same domain), even the TS.
