Although TFS Proxy is supposed to run as by a service user accont, however, there is a way to get around it if your setup is on a domain.
This is not officially supported by Microsoft, but it works.
Background
It is recommended that you read http://blogs.msdn.com/tsyang/archive/2008/03/24/how-team-foundation-server-proxy-2008-works.aspx before proceeding.
Instruction
Update