This is going to be a very short post because there is not a whole lot to say other than if you want to connect to a TFS AT that is on a different machine … “DON’T USE IT.”
There has been a lot of reports of the build service host not being able to connect to the TFS AT when the AT is on a different machine. This is because the “Local System” credentials do not have all of the appropriate permission needed to successfully connect and therefore fail. For the most part, we prevent you from using these credentials when they would otherwise fail. However, there is at least one way that I know of that the user will be able to use these credentials when they shouldn’t and unfortunately, each day more people are finding themselves using these credentials and being unable to have their build service host connect.