In my Lucid setup, ltsp-client-setup sources /usr/share/ltsp/ltsp-init-common, 
which in turn sources /usr/share/ltsp/ltsp_config, which sources lts.conf:
# Read in lts.conf entries.
if [ -f /etc/lts.conf ]; then
    eval $(getltscfg -a) || true
fi

Are you still experiencing the problem?

** Changed in: ltsp (Ubuntu)
       Status: New => Incomplete

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https://bugs.launchpad.net/bugs/259790

Title:
  ltsp-client-setup init script should source lts.conf

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