I am trying to set up a Server 2008 R2 terminal server as a Hyper-V VM on a brand new Cisco UCS blade running Server 2012 R2.
I need the terminal server to support modern display resolutions at 32-bit color, as it will be used to display medical images. Unfortunately, this blade only contains a Matrox G200e video chipset with a whopping 8MB of video ram.
Does there exist a purely software-based video driver that I could use to emulate better graphics hardware? It doesn't have to support DirectX, Aero Glass, video games, or anything like that. It just need to be able to support 32-bit color at 1920x1200. The blade itself has 16 CPU cores with 256GB of RAM, so performance is not an issue.
Your RDP session video resolution is not related to the physical graphics adapter on the terminal server but is more related to the resolution you are running on the workstation initiating the connection.
Connecting directly through the Hyper-V console to the guest you will be limited to 1600x1200 resolution but this limit does not apply to an RDP session.
There is a software-based OpenGL implementation, but it's very slow at best and quite buggy.
I think your question is just a mite too general. Short answer: no, there is no software available that will emulate graphics card hardware that is Aero compatible (and Direct3D etc).
Building on what @Rex said, the issue is likely to be the client itself supporting the necessary resolution and bit depth. But if setting the internal emulated graphics card on the host to 32 Mb fixes it, I'd go with that (I hope you can spare 32Mb with 256 GB of RAM).
Ideally, whatever imaging software you're using to display things should have a software-rasterizer which it falls back to automatically when accelerated graphics aren't available, so at least the program should still work. Personally, I have my RDP hosts set with 64 Mb for the emulated graphics cards just for kicks.