Many people are having problems installing Team Foundation Server 2008 with an (existing) installation of SQL Server 2008.
The problem is that the TFS RTM 2008 does not support SQL Server 2008;
SP1 provides that support and you can get it from MSDN downloads, but SP1 only works over an existing TFS installation. So, this is a problem.

The workaround is to merge the setups to make SP1 an installable, with the steps below:
1. Copy the AT folder from the TFS install disk to your hard-drive, say C:\TFS_AT as the .
2. Extract SP1 to your hard-drive, the
Run the command from the SP1 folder: TFS90sp1-KB949786.exe /extract:C:\TFS_SP1
3. Combine installable and SP1
Run: msiexec /a \vs_setup.msi /p \ TFS90sp1-KB949786.msp TARGETDIR=
4. Run setup.exe from the

Source blog: http://blogs.msdn.com/aabdou/archive/2008/05/13/team-foundation-server-sp1-beta-now-available.aspx

To read more about the features added in SP1, check:
http://blogs.msdn.com/bharry/archive/2008/04/28/team-foundation-server-2008-sp1.aspx