What are the pro's and con's for building applications to run in Terminal Server or Citrix?

We are replacing a File Server set of applications that run over a T1 line from one (US) state where the client applications are to another (US) state where the file server is. We are proposing an nTier application architectrure. Our network services department is suggesting that we deploy the presentation tier using terminal server.

Don't we lose distributed processing?
How scalable is an applicaiton when all processing for all clients is done on one machine (such as a terminal server)?
How do applications that run under terminal server fair when constructing and printing reports?

Our NetServices team is proposing a super server. 4 Processors 1Gigabyte of RAM, RAID 5 etc... This is good.

When I attend confrences, we are told about SQL-Server MTS/COM+ and IIS/Fat Client GUI. Why do I never here about using Terminal Server?

The language for application design (DLL's EXE's) will most likely be VB. Would Fox be Better, Worse, or No difference. Existing programs are Fox DOS and VFP 6 SP3.

I want to lean toward not using Terminal server or Citrix. I have 0 experience with these products. Therefore if it is better to use them I want to use them and throw out my feeling.