Warning: TFS 2008 SP1 and WSS 2.0
I usually try to avoid the "me too" style blog posts, but this one seemed like a good idea - especially since some of my clients will run across it and may not easily find the solution.
I've been asked numerous times about any unexpected side effects of installing TFS SP1 and so far I've been able to say there were no issues. But there is an exception depending upon your TFS configuration.
If you are running TFS 2008 with Windows SharePoint Services (WSS) 2.0 on the same server, you need to be aware of a compatibility issue. WSS 2.0 doesn't play nicely with .NET Framework 3.5 SP1. The symptoms and a workaround are documented on the Microsoft SharePoint Team Blog: http://blogs.msdn.com/sharepoint/archive/2008/08/27/net-framework-3-5-sp1-issue-on-windows-sharepoint-services-v2-0.aspx.