You can install applications to the terminal server while it is in production. You can initiate install mode while users are logged on. The server will still be available. Any logged in users will not see the newly installed applications until you go back to execute mode and they log off and back on again.
Here is the procedure:
Make sure you have a backup (preferably image based) of your production application servers before installing new programs.
Make sure your terminal server is in Application Server Mode (Windows 2000 Server) or has the role of Terminal Server (Windows Server 2003) before installing your software (unless this server is used specifically for remote administration)
Make sure the terminal server is in “Install Mode” before installing software. This can be accomplished by initiating the install routine via “Add/Remove Programs” or by manually placing the server in “Install Mode” with the cmd prompt utlility “change user /install”. After the install is complete you place the server back in “execute mode” via “change user /execute”.