To work with Visual Studio Team System Team Foundation Server, the collation settings for SQL Server (2005 / 2008) must be:

1. case insensitive (clear the Case - sensitive check box), 

2. accent sensitive,

3. and not binary.

To avoid problems with double-width or hiragana/katakana-equivalent characters, you should select the check boxes to enable Kana and width sensitivity when you install SQL Server.