The Environment: Doing a remote desktop connection (RDC) into a machine that runs your Virtual PC 2004 images.
The Issue: EXTREME VPC slowness, window title bars are missing, the mouse leaves artifacts and is about 5 seconds delayed, and the VPC is not maximized (has scrollbars present).
The Fix: Make the VPC large enough so that it does not have scrollbars or maximize it (alt+enter).
A seriously annoying and confusing issue… Below is a screenshot of the craziness. Note the mouse artifacts and the top of the Windows Start menu is missing: