Chuck,
We are looking into the exact same thing. I've posted some questions in the forum but haven't received any replies yet. We're currently setting up a new dev environment and are investigating hosted TFS. Ideally we'd like to incorporate the build process as well but are looking for some guidance from DNN on how to do this on a module level (we don't need to manage source on core).

I'm happy to share what we learn here as we work through the process.

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Steven Webster
Manager, Community Platform
F5 Networks, DevCentral

Just a quick outline on how we do it where I work.

Each developer has a local copy of DNN and the database on their local machine.
The DNN instance is located in the local TFS directory. All modules that we created are part of a solution. (WIthin the structure of the DNN instance) This includes any skins though these are just checked in directly to TFS. The DNN instance is not in TFS. We are using Chris H.'s templates for modules so the modules are packaged up during a build. But, having said that, we don't use the install packages because all of the modules are for our sites only and we hand install them all and also upgrade by hand.

Debugging is done by attaching the the asp.net process and going o the site set up on localhost.

It is a bit of a pain to get set up at first but it does work.

Hope this helps.

Robert