AFAIK to do this "properly" using only the software you've got you have to install proper (WHQL-certified) printer drivers for each of your users' printers on that TS system. One word. Ugh. More words -- if you install the wrong driver, certified or not, you're in a world of trouble. Some vendors, like HP, have produced lists of drivers that they have specifically vetted for use with TS.
There are, however, third party solutions that provide some isolation for your Terminal Services server and allow your users to print through TS to their local printers without having to install a crapload of junky inkjet printer drivers on a valuable applications server. triCerat's ScrewDrivers is supposed to be good, though I can't vouch for it personally.
Just some info I came across while doing some research for a client who ran into some nightmares trying to do what you are thinking of doing --
MSKB articles:
331055 - Best Practices for Installing and Using Printer Drivers With Windows 2000 Terminal Services
317780 - Print Jobs That Are Sent to Terminal Services Redirected Printers May Print on Another Client's Printer
302361 - Printers That Use Ports That Do Not Begin With COM, LPT, or USB Are Not Redirected in a Remote Desktop or Terminal Services Session
239088 - Windows 2000 Terminal Services server logs events 1111, 1105, and 1106
Yes, the client had all of these problems and more.
Some pretty good info:
http://www.workthin.com/PDF/BrianMadden-TerminalServerPrinting.pdf
A link to a spot with some more good info and a link to a way of mapping unsupported printers to supported drivers:
http://www.printingsupport.com/
http://www.printingsupport.com/printsubs/index.html
Have fun! It wasn't really that bad once I did a little homework, helped their sysadmin configure the server, and explained the situation to the client so that they put proper controls in place. One of the really funny things that was happening was that one of their managers kept on logging on to the system from home and was always annoyed to find his minions having problems with the server. "It always works fine for ME when I'm there!" Yeah. It was the driver for his multi-function do-everything-but-do-it-badly home device that was beating the server to its knees. Heh. And, natch, he just HAD to have admin privs. He doesn't have them any more. When I visit that place these days I walk softly as I pass his office.