I am getting ready to set up a network for a small business, as part of this project i will set up a vpn connection. the problem is that i need users to be able to run the applications directly off of the server for security reason as well as for simplicity. so my question is basically can or should TS be used this way? if not what other solutions should i look at? the owner of the business bacically wants absolute control over who uses he client databases and wants to give users access to to the server only as needed for example if he hires a contractor to handle a client in another state. i know i should be able to control access using AD but what i am not sure about is how this will work when combined with TS

Yes, Terminal Services seems just what you need.
And security-wise, it's just like any other server in the domain, so you can control which user accounts in AD will have permission to logon to the TS, and you can restrict what they can do there, with NTFS permissions on the file system and restrictive GPOs.