I remember seeing a video a long while ago (before Vista was released) showing a method of remoting a single app rather than your entire desktop (allowing you to run remote and local apps side by side). Did this make it into Vista? Or do you need Server 2008 to do this? Or was I hallucinating?
You're referring to Application Virtualization for Terminal Services which runs on Server 2008.
I saw a demo at the Vista launch where they showed notepad running remotely running next to notepad running locally and the only way you could tell the difference was by looking at task manager.
I don't think he's talking about App Virtualization. I think he's talking about Terminal Services RemoteApp. It's a feature available in Windows Server 2008 that can be used by clients as far back as XP SP2 according to the linked article. You basically configure your Server 2008 machine as a Terminal Server and then instead of clients running a full blown RDP session, they simply RDP a single app that looks like it's running locally on their system. I don't think it's possible to get the server portion of this functionality from Vista since it can't be configured as a real Terminal Server.
VMWare workstation has that feature, it is called "Unity". Parallels has similar feature (Fusion), on Mac OS. Nothing out of the box on Vista that I know of.
Wanted to note that not VMWare nor Parallels are "remoting" but VM programs.
Application publishing has been available in Citrix for years - all the way back to MetaFrame on NT4 for certain; I never used WinFrame to be sure.
It works really well in that environment, and it was (pre-2008) one of the big selling points of Citrix.
You can run the remote desktop client, and specify a program to open on connection. When you close the program, the remote session is closed as well.
Perhaps this is what you have seen?