Prior to Event X, RDPing to Server 2003 always caused the user name appear blank and Login to be enabled, so you could pick to which domain you would log in. For us it's either local or our domain. Since a recent Event X a domain + user name is being suggested for every server and it's not the most recently used user name. If you remove it manually from RDP dialog, it's still being pre-populated for you, and then at the next available opportunity it returns into General/User name option of RDP dialog.

So user name field comes pre-populated and you cannot change to log in locally (only if you manually erase domain specifier - everything before \) - Log in to option is disabled by default. We did not do any changes to our domain or client machines, so I am suspecting some Windows update caused it (and this being Event X). Interesting fact - it does not consistently happen on all machines, and some can login to some servers fine, while other servers keep suggesting a default user name.

What could be that Event X and is there a way to fix it?

EDIT: I tried this - How to clear remote desktop connections history and specifically this part of it:

reg delete "HKEY_CURRENT_USER\Software\Microsoft\Terminal Server Client\UsernameHint" /f

The problem still persists.