When you say "timeout" I suspect you're talking about one or more of the following settings:
- Set time limit for disconnected sessions
- Set time limit for active but idle Terminal Services sessions
- Set time limit for active Terminal Services sessions
These settings can be specified on a per-user or per-computer basis, depending on whether you are specifying the settings under the "Computer Configuration" or "User Configuration" node in the GPO.
When you say "...add the local machine too" and "Works for admin..." you make me suspect that you've specified the setting in the "Computer Configuration" node and linked the GPO in such a location as to make it apply to the Terminal Server computer.
If this is the case, I'd unlink the GPOs and re-link them in a location where they will apply to the user accounts you intend them to effect and then modify them to use the per-user settings (under "User Configuration").
Once you've re-linked and modified the content of the GPOs, verify that the permission on the "TS-Timeout" GPO includes "Authenticated Users / Read and Apply Group Policy" and "Administrator / Deny Apply Group Policy". Verify that the "TS-NoTimeout" GPO has the permission "Administrators / Apply Group Policy" (as well as all the default permissions "Administrators" is assigned) and that the default "Authenticated Users" ACL has been removed. I recommend editing the permissions by right-clicking the top node of the GPO in the Group Policy Editor rather than using the "friendly" and much less "standard" permission interface in the Group Policy Management Console.
(If you insist on using the "Administrator" account instead of the "Administrators" group alter my permission recommendations as such. If you have more than one discrete person using the "Administrator" account you're doing it wrong... but that's a rant for another question.)
By using the "Administrators / Deny Apply Group Policy" permission on the "TS-Timeout" GPO you prevent any need to worry about the "priority" of the GP links. Even though the UI will scold you a bit for using "Deny" there's nothing wrong with doing it and, in this case, I think it makes the resultant configuration far more understandable than relying only on the GP link "priority". I also think that modifying the permission serves the intent more clearly-- to make "TS-NoTimeout" apply to "Administrators" and not "Authenticated Users", and for "TS-Timeout" not to apply to "Administrators", regardless of where they are linked.