This was strange as we did install the client on a public share, and we also imported the correct configuration for the AX 2009 client.
Anyway, I need to give full credit to my company's System Manager. His name is Rohan Robinson and he is truly a master when it comes to Terminal Services and Citrix. His email is email@example.com in case you have questions for him.
So, Rohan came up with the following solution:
1- He installed the AX client on a public share
2- Imported the correct configuration for the client. In here make sure that the configuration file has the correct path as shown below:
3- Moved the configuration file to the bin folder (E:\Program Files (x86)\Microsoft Dynamics AX\50\Client\Bin)
4- Modified the properties in terminal services to point to the axc file instead of the AX32.exe file. The process is as follow:
*Right-Click on the AX remote App on the Terminal Services UI as shown:
*Then change the path with the configuration file name (which is already in E:\Program Files (x86)\Microsoft Dynamics AX\50\Client\Bin) instead of the AX32.exe one as shown below:
At this point, everybody can access the application through terminal services. Rohan also mentioned that the same process can be used in Citrix (XenApp 6.0).