I had the fun of doing a TFS installation on a customer site this week using TFS 2008 SP1 and Sql 2008.
What fun! We ended up backing out the SQL 2008 installation, creating a new differencing disk from the Windows Server 2008 baseline we had, and putting SQL 2005 SP2 on instead. I'm not sure exactly what went wrong but the TFS Service just could not connect to the Tfs Warehouse database.
Even with the SQL2K5 installation we had problems connecting through to the Reports from Team Explorer. What could save someone some time is this... Be sure to upgrade not only TFS to SP1 on the Team Explorer machine, but also VS2008. We only did VS2008 and obviously Team Explorer had changed as-well.