No worries, I think I found the problem in the Smart Card software.
Hi guys,  I've got a headache!  We've got an issue with smartcard redirection to a Terminal Server farm... For most of the time it works fine and the authentication software installed on the TS farm sees the card, but sometimes the same software has a problem where the SC looks like it's being inserted and removed every couple of seconds even though the card is firmly seated.  I've recreated this several times, albeit randomly, and it doesn't seem to affect everyone on the same Terminal Server.  Any ideas? 
Problem with Smartcard Redirection