Finally today, I managed to install TFS 2010 on my virtual pc which is server 2008 with SharePoint 2007. The erors I got is all aournd permission. So you need to make sure your SharePoint Service and Application Pool use domain account. There are 2 problems I had;
1. Ther error happens when configure the TFS.
TF255275: The following Web service for SQL Server Reporting Services could not be accessed: http:///ReportServer/ReportService2005.asmx.
To fix this error, you will need to remove the ReportServer and ReportServerTempDb database from the database server, see here for more details.
2. Grant TFS permission to SharePoint. This is a permission problem. I will need to change all my sharepopint service to run under domain account. See here