So I have the service running on my Win7 machine, everything connects and I can see that a connection has been established in the logs on both the server (Win7) and the client (10.7). The mouse however will not pass from the server to the client. It just stops at the edge of the screen.
Everything seems to work perfectly if I run the gui version and stop the service on the server with the same configuration file.
I can turn up the logging level and try again if it is any help.