Man, have I received some flak for not posting about this earlier.. So here you go:
This white paper outlines how to use Visual Studio Team System for successful requirements management using Visual Studio Team System 2005 or Visual Studio Team System 2008. In addition, you can use this paper to learn about some of the challenges that Microsoft intends to address in the next release: Visual Studio Team System code name “Rosario.”
The download page is here, or you can download the various formats of the paper directly: XPS | PDF | DOCX
It's actually a well-done document that explains the current state of handling requirements in Team System, as well as what is planned for the future, i.e. "Rosario".