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The Visual Studio Team System Rangers, in conjunction with the community, have released a connector allowing you to use Project Server 2007 with Team Foundation Server.
Future versions of Team System will have native integration with Project Server, in the meantime this Connector solution is the best way to integrate the two Microsoft products. This solution builds on the previous PS2003 VSTS Connector, published on GotDotNet. This solution is intended to provide guidance, provided as source code that can be used "as is," extended, or modified.
The Connector synchronizes Project, Resource and Task data between the two systems. Project Managers and Resource Managers continue to work in the EPM environment while the development team works in the development environment, i.e. TFS, and data seamlessly flows between the two systems. Updates to work items in TFS are automatically applied to the corresponding assignments and tasks in Project Server and vice versa. Project Managers have complete control over the inflow of the actuals into the project plan. In addition, resource management functions for all development projects, like managing time and utilization for resources working across multiple projects, team staffing etc. can be performed in Project Server. Lastly, portfolio and program level reports can easily be generated for projects being executed in TFS and managed in Project Server.
You can download the connector from http://www.codeplex.com/pstfsconnector