RDP Copy&Paste Error: Windows cannot find '%1!ls!'

After working for years on mRemoteNG, and copying and pasting from servers I use all the time, I suddenly started getting the following error on a particular Windows 2003 server:

Windows cannot find '%1!ls!'

Copying and pasting from the exact same server works with regular RDP (mstsc.exe). Everything seems to be set up fine in both, including clipboard and drive sharing.

Reading numerous online forums did not give the right direction, but the solution was fairly simple (see answer).

Solution 1:

The solution was unbelievably simple: enabling Smart Card sharing did the trick and copying&pasting works again.

I am still trying to figure out why—on other almost identical Windows 2003 servers, Smart Card sharing is still disabled and copying and pasting still works.