Yes you are correct, you have to install terminal services in application mode. You also have to install a licensing server, either on the same server or on another 2000 server on the network.
Licensing - For windows 2000 server, you will only need to purchase client licenses for windows nt, 9x and XP Home clients. If the clients are windows 2k or XP Pro, you do not need any additional licenses. This all changes with Windows server 2003. With Server 2003 you will need client licenses for all clients.
Loading the clients - For all non-XP client, you can go to the MS dowload center and download the latest remote desktop client from there. Here is the link:
http://www.microsoft.com/downloads/details.aspx?FamilyID=a8255ffc-4b4a-40e7-a706-cde7e9b57e79&DisplayLang=en
The remote desktop client is included with Windows XP. Start> all programs > accessories > communications.