This issue occurs when using Visual Studio 2005 or VS 2008 without the compatibility update installed.  If you already installed the compatibility update then its possible that the URL used is incorrect. Verify that the URL for TFS meets the following format http://YOURTFS:8080/tfs  . If you have not installed the update you will need to do so in the specific order below.

ERROR: TF31002: Unable to connect to this Team Foundation Server: tfs2010.

Visual Studio 2005 to TFS 2010

 The process must be completed in the exact order to work.  

1. Visual Studio 2005
2. Install TFS Team Explorer 2005
3. Install Visual Studio 2005 Team Suite SP1
4. Install Visual Studio Team System 2005 Service Pack 1 Forward Compatibility Update for Team Foundation Server 2010 (Installer)

Visual Studio 2005
On the Visual Studio Toolbar go to Tools and select Connect to Team Foundation Server

Select Servers

Select Add and enter the server details  http://tfs2010:8080/tfs

*The Connection Details on the screen should gray out after entereing the URL. If this is not the case, then the “Forward Compatibility Service Paack” has not been installed or the order it was intalled is incorrect. *

Connection Completed

Connecting to TFS 2010 from Visual Studio 2008

Visual Studio 2008 (The Same process as above with the following software below)

1. Visual Studio 2008
2. TFS Team Explorer 2008
3. Visual Studio 2008 SP1 (installer only) (ISO – Full download)
4. Visual Studio Team System 2008 Service Pack 1 Forward Compatibility Update for Team Foundation Server 2010