Hi Janelle,
Following up on our previous discussions and my advice to post this topic for further feed back from Softrak and other experienced installers, here are a few thoughts that we have already covered:
1. Yes, with the correct hardware and configuration, you should see a significant performance increase with the user sessions and the Adagio Programs and Data all running on the same RDS Server (I happen to know that you are speaking of a Windows Server 2008 R2 Enterprise Edition).
2. I believe that this would have been a much less disruptive transition if you could have been using a brand new server and not "interfering" with the live environment at all while installation and testing of the new environment was taking place - not to mention the performance gain to be had from a current machine. However, I do understand the constraints of reality and the fact that you would really like to make the transition using the hardware you already have.
Notwithstanding the above, I believe that while the method you propose is possible, I would be concerned (maybe very concerned) about possible conflicts with users on the RDS Server after the new Adagio installation using the special "Terminal Server" installation feature. This feature will monitor the Adagio installation and then look to duplicate it across all Terminal Server users. This could mean that certain Adagio environment settings & paths could be directed to your Test environment for those users that should be on the Live environment. You may have to either a) install as a TS app but restricted to certain Groups/Users or b) not install as a TS app at all and simply do specific WS installs for the test users and then later for the Live users to effect the final switch.
Disclosure Statement: That's my best guess, can't swear to it, having never done one like this before. If I were the IT/Adagio person responsible, I would be pushing for a different machine but that could be due to just not knowing the right stuff. Hopefully someone else in the community would have had specific experience in this area.
Good luck !!!
Pete