Outbound RDP session from XP SP3 fails, but port 3389 is reachable

I've been having this same issue as well.

Port 3389 will be open and accessible via Telnet. When I try to log in it'll seem to have connected but the session disconnects after a brief pause (about a second or two).

After hunting around on the web and reviewing my system logs I discovered that it was caused by a problem in the display drivers. In my case it was caused by the ATI Catalyst drivers but systems with nVidia drivers have been known to suffer the issue as well.

I'd suggest reviewing your Event Log > System for messages such as:

\SystemRoot\System32\RDPDD.dll failed to load

In my case the issue was resolved by rolling back to the basic ATI video driver.

Here's a more in-depth discussion of the issue. http://blogs.technet.com/b/brad_rutkowski/archive/2008/01/04/systemroot-system32-rdpdd-dll-failed-to-load.aspx

Using Telnet you open a connection to the port. Using an RDP client that's only the very first stage. It then goes on to negotiate some connection parameters and perform authentication. A fail on any of those and it immediately disconnects.

There may well be an issue on the RDP host but Telnet is absolutely useless for diagnosing such a problem beyond verifying that the port can be connected to. I'd be more inclined to use Wireshark, or similar, to watch what happens when the RDP client tries to connect.