Team Foundation client applications, such as Team Explorer, access Team Foundation Server functionality through a collection of Web services hosted on Internet Information Services (IIS) 6.0. The initial RTM release of Team Foundation Server only supports Integrated Windows Authentication, which allows clients to use their Windows credentials to access this functionality.
Integrated Windows Authentication is an ideal choice for most deployment scenarios in a corporate environment, but it is not an optimal choice in Internet scenarios due to limitations resulting from proxy servers, firewalls, and trusted connections. For this reason, we originally planned to support Basic and Digest authentication as well. For more information, see Integrated Windows Authentication (IIS 6.0).
Unfortunately, we were not able to complete this implementation in time to ship with the initial RTM release of Team Foundation Server. We are continuing to work on adding this support in the near future, which should be available sometime soon after the release of Team Foundation Server. However, this means that Team Foundation Server does not immediately support some scenarios, such as accessing Team Foundation Server through a proxy that does not maintain a connection between the client and server.
This does not mean that Team Foundation Server is not accessible from across the Internet. You can use a Virtual Private Network (VPN) should your scenario require accessing Team Foundation Server from outside your local intranet. Alternatively, and subject to your own risk analysis, you may opt to expose your Team Foundation Server directly to the Internet and require the use of encrypted connections (e.g., HTTPS using SSL/TLS); however, you may be thwarted by proxies on the client side of the equation, such as those provided by Internet Service Providers (ISPs).
If your intended use of Team Foundation Server requires support for Basic or Digest authentication, we would like to hear your feedback on the importance of these authentication mechanisms in your deployment scenarios.
[Now available as a KB article: http://support.microsoft.com/kb/916845]