From this Microsoft KB article and This microsoft KB Article, it would seem that the X509 certificates is corrupted.
The below is from Microsoft
On the Terminal Services Server
Start Registry Editor (Regedit.exe or Regedt32.exe).
Locate and then click the following key in the registry:
HKEY_LOCAL_MACHINE\System\CurrentControlSet\Services\TermService\Parameters
In this registry key, delete the following values:
Certificate
X 509 Certificate
X 509 Certificate ID
Quit Registry Editor, and then restart the server.
On the Windows XP-Based Client
Start Registry Editor (Regedit.exe).
Locate and then click the following key in the registry:
HKEY_LOCAL_MACHINE\Software\Microsoft\MSLicensing
Delete the whole MSLicensing key from the registry.
Quit Registry Editor.
Connect to the Terminal Services server.
What machine are you trying to connect to from your desktop? How is your desktop connected to that machine? Is it over a WAN? Is it part of a domain? – Steve – 2014-01-08T06:44:17.053
@Steve: I am using Windows XP service pack 2. It is LAN. – Anand Jaju – 2014-01-08T06:54:36.643
What machine are you trying to connect to? – Steve – 2014-01-08T10:48:55.743