The local policy does not permit you to logon interactively
 

I experienced this error on a XPMode Microsoft Virtual PC machine after joining it to a domain and trying to log into the machine with a domain login. This fix applies to any Windows XP installation when logging into the computer or attempting to use RDP or Terminal Services.

  Here is the quick fix:

Logon to the workstation as the administrator. Right click on the My Computer icon then click properties, then select the remote tab. You will see a button that allows you to select users allowed to access the workstation remotely. Add the domain user that you would like to allow access to that workstation, in the form of domainusername.