By default Icaps writes its temporary files to the C:\WinIcaps_Local_Data folder unless told otherwise (LOCALON parameter) so on an RDS server you MUST set up a unique folder for each network user.

The normal method most customers use is to have a shared folder ie c:\homedrives with a folder for each user within it. As each users logs in the folder is mapped or subst to a drive letter ie H.
Using a batch file you would have something like:
MD c:\homedrives\%USERNAME% This creates the folder if it doesn’t exist
NET USE H: \\server\homedrives\%USERNAME% This maps drive H: to the users own folder.

Alternatively you could use SUBST instead of Net Use
MD c:\homedrives\%USERNAME% This creates the folder if it doesn’t exist
SUBST H: c:\homedrives \%USERNAME% This maps drive H: to the users own folder.

The Icaps icon then needs a parameter to tell the program where to store it’s work file is:
\\server\icaps\win_pgms\winicsel.exe LOCALONH where the H at the end of LOCALON is the drive to use.

When the user logs into Icaps a WinIcaps_local_Data folder is created on the H: drive – doing this ensures that work files are unique to each user otherwise there is the danger of users clashing over work files with the same name.