Currently Team Foundation Server uses Windows SharePoint Services sites to host project sites. This provides a useful central point to collect development documentation, workspaces, meeting spaces, and allows people without TFS to at least view the related information (although now there is an additional option, the very cool TeamPlain Web Access for Team System, which is free for all licensed TFS users!).

Unfortunately the current version only supports WSS 2.0 sites. There are some work arounds, but they can be flaky.

The good news is that TFS 2008 will support WSS 3 sites - Abdelhamid Abdou talks about this on his blog in this posting. Better yet, when you setup TFS you are now given the choice to have the SharePoint integration on the same box, or point to an existing SharePoint application on another server.

To learn more about the current workaround, you can read Brian Keller's blog posting here. Brian is a Technical Evangelist for TFS and makes it clear that any modifications to current TFS installations to make them work with WSS 3 are hacks and may not be supported. He does point to Mike Glaser who blogged extensively about how to upgrade to WSS 3 sites.

Incidentally, as of July 30, Readify in Australia has released TFS hosting "in the cloud"! This could be very huge for small ISVs or consultants that want to have enterprise development tools without the upfront expense or maintenance effort! The service starts at $995 AUD a month and more info can be found at http://www.tfsnow.com/.