I'm using Active Directory with Windows XP clients and Server 2003 as the AD. Is there a way to allow a local user to be logged in and allow an admin to login as well without one of the sessions being dropped?
You can have 2 admins connected in Remote Administration mode onto a Server 2003 product, but not into XP natively. There have been products before that would let multiple users connect to a Windows XP Home or Pro machine, but it violates the EULA, and the users were cautioned against installing certain updates, and keeping certain files locked. So yes, you can, but it obviously isn't recommended.
When using Remote Desktop with Windows XP natively, it will kick the current user off, no matter what. You can, however, enable the Telnet server if you know the commands to run, and that will run in the background of the machine