I had a similar issue when dealing with a remote access setup for a client on Simply 2005 when the program could not find things it needed. The solution was easier in that we could just move the files, however, I think it would be worth looking at adding the path for the Connection Manager to the search path on the Terminal Server. By default it includes paths like %windows%, %system32% etc. but does not include the
C:\Program Files\winsim\ConnectionManager
which is the path to the Connection Manager. So adding this path to the search path on the terminal server may help. You may need to also add the path
C:\Program Files\winsim\ConnectionManager\MySqlBinary\5.0.38\mysql
but I have never really done any work with this type of setup but have experienced this type of thing for another reason and thought it might be worth a shot.